Incorporation of art in Hong Kong’s shopping mall : heterogeneous impacts on rateable values of different shop catergories

Abstract

Artification of malls have been becoming a worldwide trend in recent years, given the many successful business models of art combining with luxury retail in Asia’s major cities. A one-of-a-kind art mall- K11 Musea was opened in Tsim Sha Tsui, Hong Kong in 2019, it clearly establishes its unique positioning of cultural retail by creating a museum-like atmosphere inside the mall. Many visitors are attracted its aesthetic environment and architecture, the footfall drastically increased after the pandemic. However, it is uncertain that whether this art plus luxury business model would be successful and boosting sales of the mall in Hong Kong as in other cities with limited study on its rental level. This study aims to investigate the art mall performance in comparison with traditional shopping mall in Hong Kong from the rental level approach, which is different from the consumer approach of prior research. The rental level reflects the sales and consumer preferences of a shopping mall and give suggestions on whether artification of shopping malls is an effective way to boost the retail industry amid the economic downturn in Hong Kong. Previous studies suggested that an aesthetic mall with unique architectural features, interior decoration, ambient scent and lighting and complex layout could make visitors feel energetic with positive emotions and spend longer time in the mall, hence, shortening the time for making decision and spending more money in the mall. While artification is common strategy adopted by luxury brands to enhance their brand and product image, this strategy is aligned with the positioning of art mall; most of the art malls positioned itself as a luxury mall, which is the most profitable sector. Artistic environment enhances the shopping experience and the satisfaction of consumers, as well as the rental level of art malls. Therefore, hypotheses are set as art has positive impacts on the rent of all types of shops. Three traditional shopping malls in similar scale and positioning are selected for comparison with K11 Musea, namely Times Square in Causeway Bay, Elements in Tsim Sha Tsui and Pacific Place in Admiralty. In order to minimize the variance between the rental level of different types of retailers, as well as ensuring a fair and accurate comparison, the tenants are divided into six major categories (luxury, F&B, beauty, fashion, sportswear and others). Thereby, developing six hedonic price models for these six categories of tenants; other attributes that are affecting the prices such as wide frontage and floor levels are also added into the regression models. Since the rent of shops are kept confidential between the developers and tenants, the only way to conduct this research is to adopt the rateable value published by RVD annually. It is assumed that the rateable value is an accurate reflection of market rent, as tenants submit their rent for reviewing and they have the right to object rateable value higher than their actual rent. The dataset of both K11 Musea and traditional malls are put into the regression models to test if art has a significant impact on the rateable values. It is found out that only the F&B sector has a strong correlation (significant at 99%) with artification, meaning that F&B tenants in art mall has a higher rental level than those in traditional malls. Surprisingly, there is no significant correlation observed between art and the majority of retailers. Some research explained this observation that Hong Kong consumers prefer shopping malls with variety of commodity, and a more diversified mall has higher rent in Hong Kong, as K11 Musea was regarded as solely luxury and with nothing interesting in the tenant mix to match such unique environment by visitors. It is also supported by literature that luxury shoppers are less influenced by the mall environment when comparing to other shoppers, as luxury shoppers are mostly utilitarian shoppers. Therefore, the retail industry shall re-consider whether luxury art mall would be a successful business model in Hong Kong given the huge investment at the beginning.