What makes McDonald’s assets stand out amid a weak Hong Kong retail property market?

One year after McDonald’s began selling its self-owned Hong Kong shops, the fast-food giant has found buyers for nearly half its portfolio even as the city’s retail property market endures its weakest spell in decades.

McDonald’s planned to dispose of all 23 shops in phases, market sources said, with the portfolio initially valued at about HK$3 billion ($480 million).

Since launching the disposal plan with JLL in July last year, the chain has sold 11 properties for more than HK$900 million — five last year and six worth HK$607 million this year, according to calculations by South China Morning Post. The sales included the first batch of eight properties marketed by JLL through public tender.

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The progress is notable amid Hong Kong’s retail property downturn. While McDonald’s is still realising gains over its historical purchase costs, other shops have sold at prices more than 30% below peak valuations or original asking prices.

Shop values remained more than 50% below pre-pandemic highs, while veteran investors and major landlords continued to offload assets, according to analysts. Only 379 shop transactions were completed in the first half, little changed from a year earlier, according to Centaline Commercial.

Analysts said the McDonald’s sales did not signal a broad recovery, but showed investors remained willing to buy assets with the right qualities: being in prime locations, having long leases and backed by blue-chip tenants. Capital remained available for retail property — but increasingly only for assets offering stable income and defensive returns.

Eunice Tang, executive director of capital markets at JLL, which has been marketing six of the McDonald’s shops, said the disposals highlighted continuing investor interest in top-tier retail properties despite the broader market downturn.

“Retail transactions for properties valued above HK$50 million have been sluggish since last year,” Tang said. “Nevertheless, the availability of prime-location retail assets backed by blue-chip tenancies has captured the attention of high-net-worth buyers.”

Across Hong Kong, only 32 shop transactions priced above HK$50 million were completed by July, with a combined value of HK$3.17 billion, down from 37 deals worth HK$4.31 billion a year earlier, according to Centaline Commercial.

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The McDonald’s shops were sold under sale-and-lease-back agreements, allowing the chain to continue operating the restaurants on leases of up to 20 years. Most offered initial rental yields above 6%, providing investors with stable income at a time when rents and capital values remain under pressure.

The buyers were mixed, including high-net-worth individuals, family offices and experienced private investors. Local investor Ng Yin acquired three of the McDonald’s properties worth a total of about HK$300 million, while veteran investor Chang Yen-hsu, known in the market as “Taiwan’s Chang”, bought two.

Other buyers included Malaysian developer MB World Group and mainland China private investors, according to data from the Land Registry and the Companies Registry.

The properties were owned by MCD Real Properties, a company linked to the US mother company, which had retained them after selling the local operating business to a Citic Capital-led consortium in 2017. Many of the properties were acquired during the company’s expansion in the 1980s and early 1990s, allowing McDonald’s to unlock decades of appreciation.

McDonald’s did not respond to a request for comment.

Stanley Poon, managing director at Centaline Commercial, attributed the disposal plan’s results to both the quality of the assets and McDonald’s execution by releasing the portfolio in phases instead of flooding the market.

“Selling this many shops in today’s market is not easy,” he added.

The next phase, however, may prove more challenging. Several properties, including the flagship Star House shop in Tsim Sha Tsui, remain unsold.

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Poon said the issue was less about location than the larger ticket size, which limited the pool of potential buyers, while the basement portion of the property also made it less attractive than a conventional street-front shop.

Beyond the transactions themselves, the disposal plan reflects a broader shift in how multinational companies manage real estate.

Yan Yuejin, deputy head of the Shanghai-based E-House China R&D Institute, said McDonald’s sale-and-lease-back strategy was part of a global move towards lighter balance sheets, allowing companies to unlock capital tied up in property while continuing to operate their businesses.

Unlike store chain Ikea’s sale of underperforming mainland China shops as part of an operational restructuring, McDonald’s was monetising profitable operating assets rather than exiting the market, Yan said.

“In the future, multinational companies will place greater emphasis on operating efficiency than on owning property,” Yan added. “More non-core real estate will be monetised, while local partners take on a bigger role in supporting expansion and long-term growth.”

Yan also noted that the plan reflected broader changes in Hong Kong’s retail property market. As integration between Hong Kong and neighbouring mainland Chinese cities deepened, more residents were expected to shop across the border, weakening local retail demand and putting further pressure on rents and property valuations.

“The valuation gap with mainland China’s first-tier cities is likely to narrow as consumption on the mainland continues to upgrade,” Yan said.