Performance of Shopping Centres -Do Management's Beliefs and Perceptions Matter?*

Professor K W ChauDepartment of Real Estate and ConstructionThe University of Hong Kong+852 2859 2128hrrbckw@hku.hk

HKIS Property & Facility Management Division Conference

3 December 2011

This presentation is based on Dr John W T Hui’s PhD thesis supervised by the presenter K W Chau

Determinants of Shopping Centres Performance

• Hardware: – The characteristics of a shopping centre (e.g.

location, design etc)– Not related to shopping centre management

• Software: – Management performance: management

efficiency of a shopping centre.

Management Efficiency• Performance – management efficiency

• Efficiency – comparison of ratio of output (outcome) to input (resources utilized to achieve the outcome)

• High efficiency means more output generated with less input

People

Rental income

Location and physical characteristics

Hardware

Software

Shopping Centre Management Efficiency

• Output – Rental Income controlled for the effects of hardware factors (theoretical income of shopping centres with the same location and physical characteristics)

• Input – Human Resources utilized to generate the Output

• Comparison of output to input is a measure of “Shopping Centre Management Efficiency” or “Management Efficiency” in short.

Objective of the study

Investigate the impact of beliefs and perceptions of management on the Shopping Centre Management Efficiency holding other factors constant.

People

Rental income due to hardware characteristics

Location and physical characteristics

Rental income due to software characteristics

input output

Factors being held constant

Management Efficiency

Management briefs and perceptions

Management characteristics

Management characteristics

• Management characteristics cannot be easily observed directly.

• However the management make decisions based on what they believe to be true and how they perceive the real world (briefs and perceptions)

• Information on management briefs and perception can be collected by survey.

Three categories of management functions

A. Strategic

B. Marketing and leasing

C. Operational

Summary of expected impacts

A. STRATEGICManagement briefs and perceptions

Impact on Management Efficiency

A1Financial return >Image Building

+ve

A2 Centralizes > Decentralized Nil

A3Tenants > Shoppers

-ve

">" Means "is more important than"

B. LEASING & MARKETING

Management briefs and perceptions

Impact on Management Efficiency

B1 Visitor Flow > any other factors

+ve

B2 Professional qualifications > Experience in staff selection

+ve

B3 Planned Tenants Mix > Free Market Forces

+ve

Summary of expected impacts

">" Means "is more important than"

C. OPERATIONAL

Management briefs and perceptions

Impact on Management Efficiency

C1 Budget Based > Create Value

+ve

C2 Professional qualifications > Experience in staff selection

+ve

C3 Physical Property > Shoppers

+ve

Summary of expected impacts

">" Means "is more important than"

Method of AnalysisStep 1- Measurement of output

• Estimate the hedonic rental function on location and physical characteristics, i.e. RVM = f(location factors and physical characteristics)+ r

• RVM is rateable value per m2 of saleable floor area which is used as a proxy for rent, the residual r is the rental income controlled for the effects of the physical characteristics of the shopping centres – i.e. rental income of the shopping centres with the same location and physical characteristics

• Shopping centres along the MTR stations are used to minimize the number of independent variables need to be included in the hedonic model

Measurement of Management EfficiencyStep 2 – use Data Envelopment Analysis (DEA) model to obtain the management efficiency of each shopping centre

– Input = Quantity of a mix of different types of managerial and professional staff utilized to run each shopping centres

– Output = Residuals from Step 1 – Management Efficiency (ME) = Technical

Efficiency Scores assuming constant return to scale obtained from the DEA model

• Step 3 – Regress ME from step 2 on the Brief and Perception variables and other control variables that might affect ME, i.e.

ME = f(Briefs and Perceptions, control factors) +

The coefficients of the regression tells us whether the expected impact of management briefs and perceptions on management efficiency are correct.

Data• Data sample – Shopping Centres along the

MTR route

• RVM – proxied by rateable value per saleable floor area

• Physical characteristics – building plans, maps and MTR route maps, land registry records and site inspection.

• Human resources input – Survey of top and middle management

• Management characteristics – Survey of top and middle management

Step 1 Regression resultsDependent Variable: ln(RVM)Number of observations: 106

Coefficient t-Statistic Prob. C (constant) 9.7434 21.3009 < 0.1%AGE (age of shopping centre) 0.0079 0.9391 0.35CP (carpark) -0.5493 -3.3689 0.001MSD (number of stations from the nearest

shopping areas) -0.0561 -3.7773 < 0.1%

NRES (use on upper floors) 0.09016 0.6152 0.5398TALL (tall multi-level shopping centre) -0.3987 -1.0091 0.3153IFA (Internal Floor area) 3.38E-06 0.8222 0.4129Adjusted R-squared 0.2997F-statistic 8.4918

Step 2 results (DEA analysis)

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

0.7000

0.8000

0.9000

1.0000

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105

Efficiency Scores

Step 3 regression resultsDependent Variable: ln(ME)Number of observations: 106

Coefficient t-Statistic Prob. C -2.1357 -5.3091 <0.1%LOCN (A1) 0.0311 0.3421 0.73CNMG (A2) -0.0894 -1.1462 0.25TGCM (A3) ** -0.1925 -2.3549 0.02VFLW (B1) *** -0.2502 -2.8596 <0.1%HRLM (B2) * -0.1341 -1.6502 0.10TNMX (B3) 0.1069 1.1828 0.24MOBJ (C1) -0.1279 -0.9361 0.35HRPM (C2) ** 0.3525 2.1752 0.03SBJT (C3) *** -0.4719 -3.4537 <0.1%AGE (controls) 0.0164 1.3253 0.19CP (controls) ** -0.5633 -2.3105 0.02IFA (controls) *** 0.0000 -6.0100 <0.1%MSD (controls) -0.0054 -0.2361 0.81NRES (controls) 0.1324 0.5304 0.60Adj R2 0.4862F-statistic 8.0972

Summary of findingsA. STRATEGIC

Management briefs and perceptions

Expected Impact on Management Efficiency

Results

A1Financial return >Image Building

+ve × (nil)

A2 Centralizes > Decentralized Nil √

A3Tenants > Shoppers

-ve √

B. LEASING & MARKETING

Management briefs and perceptions

Expected Impact on Management Efficiency

Results

B1 Visitor Flow > any other factors +ve ×(-ve)

B2 Professional qualifications > Experience in staff selection

+ve ×(-ve)

B3 Planned Tenants Mix > Free Market Forces +ve ×(Nil)

Summary of expected impacts

C. OPERATIONAL

Management briefs and perceptions

Expected Impact on Management Efficiency

Results

C1 Budget Based > Create Value

+ve ×(Nil)

C2 Professional qualifications > Experience in staff selection

+ve √

C3 Physical Property > Shoppers +ve ×(-ve)

Summary of expected impacts

Conclusion1.Management briefs and perceptions do

affect the efficiency of shopping centremanagement

2.Focusing too much on visitor flow may lead to lower management efficiency

3.Management should focus more on the needs of the shoppers rather than those of the tenants at the marketing and operational levels

Thank You