Title: Luxury Market Maintains Growth Momentum, Boosting Hang Lung Properties’ Performance
Subtitle: Hang Lung Properties showcases strong recovery fueled by luxury market growth
The luxury goods market has shown resilience and maintained its growth momentum despite economic uncertainty and weak consumption, according to the latest report by Bain & Company. The report predicts that the global luxury goods market will experience a further increase of 5-12% in sales by 2023, building upon the 345 billion euros recorded in 2022. Factors such as the recovery of cross-border travel, regained consumer confidence in Europe, and the depreciation of the yen have attracted global tourists to Japan for shopping. Most significantly, China has emerged as the most important market for the global luxury industry.
Major luxury brands such as Hermès, LVMH, Gucci, Burberry, and Cartier have seen remarkable performance in the first half of the year. Notably, Hermès reported a year-on-year increase of 25.2% in revenue at a constant exchange rate, amounting to 6.698 billion euros. LVMH, the world‘s largest luxury goods group, recorded a year-on-year revenue growth of 15% in the same period, reaching 42.24 billion euros. These brands are also key tenants in high-end shopping malls owned by Hang Lung Properties.
Hang Lung Properties, a real estate company specializing in high-end retail leasing, has experienced a strong recovery in the first half of 2023. Despite a 1% decrease in total revenue due to exchange losses caused by the depreciation of the renminbi, the company’s property leasing income increased by 5% to reach HK$5.237 billion. Hang Lung Properties’ overall operating profit increased by 3% to HK$3.824 billion, and its net profit attributable to shareholders rose from HK$1.948 billion to HK$2.394 billion.
The highlight of Hang Lung Properties’ performance was its revenue from property leasing in Hong Kong, which returned to positive growth for the first time since the pandemic three years ago. The company’s retail property portfolio in Hong Kong reported a 6% increase in revenue, reaching HK$1.009 billion, with properties in commercial and tourist areas showing the highest overall revenue growth of 8%. Community shopping malls also experienced moderate growth of 4%.
CEO Lo Weber expressed confidence in the continued growth of retail property leasing in Hong Kong, citing the low base of the previous year. However, he acknowledged that the economic recovery trend in Hong Kong is weakening. The GDP of Hong Kong in the second quarter grew by 1.5% in real terms compared to the same period the previous year, indicating a slower growth rate than the 2.9% recorded in the first quarter. Private consumption expenditure also saw a decrease in growth rate, falling from 13.0% in the first quarter to 8.5% in the second quarter.
For Hang Lung Properties’ office buildings in Hong Kong, the market continues to struggle. Office rents for Grade A buildings have declined by 31% compared to the peak period in 2019. Hang Lung Properties’ Hong Kong office portfolio income slightly increased by 1% in the first half of the year. The Chairman, Lu Weibo, anticipates further pressure on rents as supply increases in the future.
In contrast, Hang Lung Properties’ rental properties in mainland China, which primarily consist of high-end retail spaces, have demonstrated stronger performance. The mainland rental portfolio revenue increased by 13% to 3.138 billion yuan during the period, with shopping malls, office buildings, and hotels recording increases of 13%, 6%, and 1.3 times, respectively. Shanghai’s flagship properties, Shanghai Hang Lung Plaza and Shanghai Ganghui Plaza, reported revenue growth of 23% and 11% respectively.
Despite signs of a slowdown in the mainland economy, Lu Weibo remains optimistic about the retail market’s future growth. Hang Lung Group’s retail mall lease renewal rate increased by 6% in the first half of the year. As the company continues to observe consumer market trends, it remains well-positioned to capitalize on the positive adjustments in the retail industry.
Overall, Hang Lung Properties has showcased a strong recovery in the first half of 2023, buoyed by the growth of the luxury market and its strategic positioning in high-end retail leasing. While challenges persist, particularly in the Hong Kong office market, the company’s performance highlights opportunities within the luxury industry and reinforces its presence as a prominent player in the real estate sector.