Report by the Chairman of the Commercial Properties Committee

Introduction

In 1997/98, the Housing Authority's commercial properties contributed an income of $5.2 billion, representing a growth of about 9.7% for the year. This is no doubt a fairly admirable achievement given the background of continued difficulty in the retail market across the territory.

Continued progress in today's increasingly sophisticated and complex environment demands a focused and business-orientated approach. The Housing Department's comprehensive programme of reform through the Management Enhancement Programme (MEP) represents a significant step in this direction. As part of the MEP, the Department was reorganised in mid-April 1997 and regrouped around four core businesses i.e. Construction, Allocation and Marketing, Management and Commercial Properties, supported by Financial and Corporate Services. As a result of the re-organisation, the Terms of Reference of Commercial Properties Committee were revised. The role of the Committee is now extended also to cover other non-domestic operation of the Authority.

Objectives

The objective of the Commercial Properties Committee has been to contribute to the Authority's strategic vision by managing the commercial property portfolio on full commercial principles with a view to achieving specified returns, maximising customer satisfaction within recognised resource constraints, and maintaining a high management standard to maximise quality, competitiveness and the image of the Housing Authority.

Increased contracting out of management services had helped securing private sector expertise to achieve cost effectiveness and to deliver the Department's objectives. Whilst improvement programme to existing shopping centres is still a major initiative, the Department is stepping up promotional activities in shopping centres with a view to establishing a friendly and lively shopping atmosphere therein.

New Shopping Centres

A total of about 32 500m

retail space in five estates was added to the housing stock in 1997/98. This includes the Authority's one hundredth shopping centre at Tsz Wan Shan Estate. Plans for high-quality commercial facilities were continuously prepared in parallel with the Public Housing Development Programme, to serve public housing and local residents with a wide range of facilities comparable to the best offered in the private sector.

Shopping Centre Improvements

With a view to achieve continuous modernisation in the Authority's existing shopping centres, the Department maintains a five-year rolling programme for shopping centre improvements. Although improvement works proposed for different shopping centres are subject of individual studies, they generally involve creation of additional retail space; improvement to accessibility, centre layout and pedestrian circulation; provision and up-grading of air-conditioning system, lighting, ventilation, floor and ceiling finishes etc. The annual budget for shopping centre improvements is around $400 Million.

To facilitate the implementation of shopping centre improvement programme, a number of projects were contracted out to private consultants. The Department is considering the use of a scoring system similar to the one currently adopted for maintenance contracts to ensure quality performance. The feasibility of the proposal will be further examined by the Department.

Privatisation of Services

Privatisation schemes involving contracting out of shopping centres and wet markets to single operator and management of shopping centres to Property Management Agents are now moving in full swing. To ensure quality performance, a Central Support Team has been set up within the Commercial Properties Division of the Department with a view to steeping up the performance monitoring of these operators and management agents. I wish to take this opportunity to express my sorrow on the balustrade failure at Ping Tin Shopping Centre which led to the injury of a nine year old boy. The incidence indeed provided a good lesson for the Authority and the Department. A Working Group has been set up by the Department to investigate the incidence and suggest ways to improve the procedures of handing over and fitting out of Shopping Centres.

Response To Change

The latter half of 1997 brought up a number of issues affecting the commercial tenants. These include the breaking out of bird flu and financial turmoil in Asia which speeded up the economic slowdown. To assist tenants in adapting to the changed economic condition, the Committee decided to offer a three-month rent free period to tenants of poultry stalls with effect from 1 January 1998. For tenants who decided to early surrender their tenancies, the requirement for the three months' advance notice was waived. Rent reductions were also granted to operators of single-operator-markets where licensees of poultry stalls were offered reduction in licence fees.

10.

To assist the commercial tenants generally, rent increases arising from tenancy renewals between 1 February 1998 to 31 December 1998 were frozen for a period of one year. In addition, the requirement for service of advance notice-to-quit and payment of compensation were also waived for tenants seeking early surrender of tenancies. All these temporary concessions have demonstrated the flexibility of the Authority and its commitment to forging a long-term partnership with tenants.

The Way Forward

11.

As part of the Management Enhancement Programme, a Business Plan for the operation of commercial properties for 1998/99 was developed and approved by the Committee. A number of new initiatives were proposed for action in the year. These initiatives are targeted at improving liaison with tenants; simplifying departmental procedures in shopping centre production and leasing of commercial properties; close monitoring of financial return, service performance and tenancy control and to developing a comprehensive risk management system for operation of commercial properties.

12.

Facing the rise in aspiration for open government, demand for better quality services from the general public and the changing economic environment and increased competition from the private sector, only continuous monitoring, evaluation and improvement to the existing policies and practice will enable the Department to meet its objectives in delivering good quality and customer-focused services to both estate residents and shoppers. With the continued support of Members of the Commercial Properties Committee and staff of the Department, I firmly believe we are fully equipped to face the new challenges.