REVIEW OF OPERATIONS 49 MAINLAND CHINA PROPERTY LEASING Our Mainland portfolio recorded sequential growth in both retail sales and revenue, mainly resulting from strong luxury spending and new revenue streams from properties commencing operations in the reporting year. Market Landscape Business Overview Despite slowing national GDP growth and broader The sequential growth in retail sales and revenue of market uncertainties due to the ongoing US-China our mainland China portfolio in 2019 was largely due trade dispute, the commercial leasing sector in to the strategic positioning and continuing expansion mainland China had seen strong growth, largely of our properties across the nation. The brand value attributable to the repatriation of spending, especially and emphasis on customer-centricity, service on high-end luxury items. Efforts on the part of excellence, and relationship building has further international luxury brands to narrow the price gap strengthened the positioning of our developments. In between products sold on the Mainland and overseas, our malls, the focus on deepening tenant engagement the depreciation of the Renminbi, and favorable central and customer loyalty through marketing initiatives and government policies, including a reduction in import the introduction of HOUSE 66, our Customer duties, tightening of customs controls at points-of- Relationship Management (CRM) program, to a total of entry, and the enactment of an e-commerce law to six projects in the year served as a significant pull combat parallel imports, have contributed to the rise in factor in attracting interest from new quality brands the domestic consumption of luxury goods. and promoting expansions from our existing tenants. According to the Bain & Company Luxury Study For our office towers and serviced apartments, stable released in November 2019, the global personal luxury growth was achieved despite softening demand. goods market grew 4% to 281 billion euros in 2019, Situated at prime locations with state-of-the-art with mainland China’s luxury market grew the most by facilities, our properties remained the preferred choice 26% at constant exchange rates to reach 30 billion among multinational corporations and industry leaders euros. Chinese customers accounted for 35% of the in the domestic market. The opening of Conrad Shenyang total value of luxury goods globally. at Forum 66 in Shenyang, the first hotel in our mainland China portfolio, serves as a catalyst for The office leasing sector, however, faced its own growth at the adjacent mall and office tower at headwinds with over-supply and moderated demand, Forum 66 and will further strengthen their prime particularly among multinational corporations in many positioning. of the Mainland’s first-and second-tier cities. 2019 Annual Report 50 REVIEW OF OPERATIONS MAINLAND CHINA PROPERTY LEASING 2019 also signified a major milestone for Hang Lung At the close of 2019, our mainland China portfolio had with the commencement of construction at the fared exceptionally well in the face of a competitive Westlake 66 site in Hangzhou, the Company’s environment and economic jitters. It is well positioned 11th project in mainland China. Situated in the prime to continue its growth trajectory with a focus on the location of Bai Jing Fang in the Xiacheng District of core elements that have established it as a significant Hangzhou, Westlake 66 will be developed into a and successful presence in markets across the landmark commercial complex comprising a world- Mainland. class shopping mall, five Grade A office towers, and a luxury hotel. The project is scheduled for completion in phases from 2024, involving an estimated investment of around RMB 16 billion. Year-on-Year Growth of Our Mainland China Leasing Revenue (in RMB terms) Overall Outside Shanghai Shanghai 11% 19% 7% Gross Floor Area of Our Mainland China Investment Properties (excluding car park area) Completed Properties under Properties Development million million 2.03 square meters* 1.36 square meters# * For a detailed breakdown of gross floor area of our completed # For a detailed breakdown of gross floor area of our properties properties, please refer to table “C. Major Investment under developments, please refer to table “A. Major Properties Properties” on page 75 under Development” on page 72 Hang Lung Group Limited 51 Over 70 of the world’s most coveted brands showcased exclusive, limited edition products and activities available only to the inner circle of luxury at the Home to Luxury Party Plaza 66, Shanghai In 2019, major reshuffling of brands on the basement Shopping Mall and the third floors was implemented to improve tenant mix and sales performance, with the former Home to over 100 global luxury and dining brands in being upgraded to feature top luxury brands while the Shanghai, Plaza 66 experienced another stellar year of latter was fine-tuned to be more designer fashion- growth following the completion of the major asset label driven. A total of 22 new brands established their enhancement program in 2017. During the reporting presence at the mall, including CELINE (Men’s store)’s year, the mall further strengthened its positioning as first standalone boutique on the Mainland, Byredo and the Home to Luxury with the enhancement of its Yves Salomon’s debut in mainland China, Pronovias’ portfolio of prestigious tenants, along with deepening Asia flagship store, and the first Stella McCartney Kids engagement with its most loyal customers through the boutique in eastern China. The opening of regionally- HOUSE 66 CRM program, leveraging positive market or nationally-exclusive pop-up stores such as those by sentiment to push revenue to new heights. Balenciaga and Maison Kitsune also attracted interest from the market. 2019 Annual Report 52 REVIEW OF OPERATIONS MAINLAND CHINA PROPERTY LEASING Since its launch in September 2018, the HOUSE 66 2020 and the effects of decentralization, particularly in program has presented opportunities for customer the more price-conscious tenant market, will engagement and tenant cooperation on new exciting undoubtedly be felt despite limited office supply in levels with a positive impact on retail sales. Among the Jing’an District. Nonetheless, being the landmark mixed many privileges of membership for the mall’s most development in Shanghai and having completed an distinguished patrons was an invitation to the enhancement of buildings and facilities in 2017, exclusive annual Home to Luxury Party, which saw Plaza 66 shall maintain its competitive edge. close to 3,000 guests enjoying a night of sophistication, entertainment, and luxury. Leveraging Grand Gateway 66, Shanghai technology to enhance customer engagement, the mall Shopping Mall made use of a WeChat mini-program as a personal party guide for guests to find their way through the Grand Gateway 66 maintained its leading position in maze of exciting activities, which included twice-hourly the market despite undergoing a major facelift, which lucky draws and vending machines dispensing special commenced in late 2016 and is making good progress. gifts prepared by tenants. The phased reopening of the shopping mall (the North Building in the fall of 2018 and the basement in Looking ahead, Plaza 66 will continue to enhance its mid-2019), has seen new brands taking up residence, customer-centric initiatives to maximize growth. leveraging buoyant market sentiment, resulting in Despite increased competition in the local market with increased footfall and retail sales since mid-2019. new projects in both Pudong and Puxi, the well- Retail sales achieved double-digit growth of 17% in the established positioning of Plaza 66 provides a solid second half of 2019 versus first-half figures, while the foundation to sustain its momentum with continuing occupancy rate rose to 91% with the addition of efforts to attract new brands and tailor the tenant mix luxury anchor tenants in the South Building including to keep pace with market demand, supported by Louis Vuitton, Gucci, Tiffany & Co., Bottega Veneta, HOUSE 66 to foster customer loyalty. The opening-up and CELINE. of additional retail space through leasable area optimization will provide room for further expansion. Grand Gateway 66 has also shaped its tenant mix to fit Plans are also in place to grasp opportunities for cross- a contemporary luxury demographic. Significant effort promotion between retail and office tower tenants in has been made to acquire new unique merchants order to maximize synergies. including the Starbucks Reserve Princi Bakery Café, which opened its first and only outlet in China in Office Tower February 2019, as well as 15 international brands in The twin Grade A office towers continued to attract the new cosmetic zone on the basement, and leading quality tenants from renowned multinational fashion retailers like Zara and i.t that are popular corporations and leading domestic firms in the fields of among younger customers. financial services, retail, and professional services. The Meanwhile, an increasing number of top luxury brands occupancy rate remained strong amid uncertain will establish their presence at the mall in 2020. economic conditions, standing at 93% at the end of Together with the launch of HOUSE 66 in December 2019. New lettings had been secured from the 2019 and the addition of a host of contemporary professional services sector and the in-house designer brands, the outlook for Grand Gateway 66 is expansion of major anchor tenants like the LVMH promising in the long