Swire Properties Sees Weaker Demand for Retail Space, Housing

  • Drop in tourist spending, falling retail sales hurt developer
  • HK company reported 48% increase in full-year operating profit

Swire Properties Ltd. said demand for retail space at Hong Kong malls is weakening and the outlook for residential property is clouded with uncertainty over possible interest-rate increases and economic weakness.

Swire reported a 48 percent increase in operating profit attributable to shareholders to HK$14.1 billion ($1.8 billion) in the year ended Dec. 31 from HK$9.5 billion in 2014, according to a company statement to the Hong Kong stock exchange on Thursday. Underlying profit attributable to shareholders, which reflects the valuation of investment properties, decreased 1 percent to HK$7.08 billion, the company said.

"Demand for retail space in Hong Kong is generally expected to weaken," Swire said. “In Hong Kong, buyers of property have become more cautious in the light of expected interest rate increases and general economic uncertainties."

Property prices in the city have fallen more than 10 percent from their September peak, according to an index compiled by Centaline Property Agency, and government statistics showed residential sales dropping to a 25-year low in February. A decline in well-heeled Chinese mainland tourists is hurting the outlook for malls and retail outlets as luxury spending has been curbed.

Swire, which owns the Pacific Place high-end mall in the Admiralty district near Central, has begun altering its tenant mix. Before earnings were released, Fiona Shiu, general manager at Pacific Place, said the company plans to increase the number of food and beverage outlets at the location by 50 percent in the next two years.

"Like all shopping areas in Hong Kong, our high-end retailers have been facing challenges in recent months due to a slowdown in inbound tourists," she said. "Customer spending patterns have changed and we are constantly revisiting the trade mix to stay ahead of the market."

One bright spot is the outlook for office properties. The company said it saw a positive outlook for its commercial real estate as the supply of prime space remains constrained.

"In 2016, high occupancy and limited supply will put upward pressure on rents in Central despite a slowdown in demand for office space by Mainland Chinese entities," the company said.

Swire shares rose 0.2 percent to HK$21.05 after the results as of 1:15 p.m. in Hong Kong, while the benchmark Hang Seng Index was up 0.4 percent. The shares have dropped 15 percent in the past 12 months, while the benchmark is down 16 percent.

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