Navigating a Thorny Path: Challenges and Opportunities in New World Development

Recently, LAB, while traveling with his children to Hong Kong, couldn’t resist visiting the iconic Avenue of Stars along Victoria Harbour. He also revisited New World Development’s waterfront city landmark and core asset project, Victoria Dockside, as well as the commercial flagship K11 MUSEA. Last month, rumors circulated that New World Development planned to use K11 MUSEA and other core assets as collateral for financing, raising some market concerns about the company’s prospects. However, during our visit to K11 MUSEA, we observed a number of positive developments, seemingly in preparation for a large flagship store from an upcoming luxury brand.Different “versions of the story” about New World Development have also appeared in mainland China. For instance, Henry Cheng, who stepped down as the group’s CEO last year, has recently made high-profile appearances in Xiamen and Shenzhen, promoting new projects. Multiple K11 projects are slated to launch this year, including heavy-asset properties in the Greater Bay Area and an increasing number of light-asset projects in other locations.So, after a nearly HKD 20 billion loss in FY2024 and ongoing executive changes, what kind of challenging path is New World Development navigating? Can the group successfully traverse this “thorny phase”?

And as public attention focuses on the “difficult market environment,” should we perhaps pay more attention to this long-established Hong Kong company’s heritage and resilience?Flagship Projects Advancing Against the Trend.Amid a period of weak domestic high-end consumption, the determination of a high-profile landmark shopping mall to advance upward always instills market confidence—K11 MUSEA is a prime example of this trend. Early in 2025, market rumors suggested that New World Development had held in-depth discussions with LVMH Group, planning to introduce a Louis Vuitton flagship store of approximately 40,000 sq. ft. (3,700㎡) at K11 MUSEA, featuring a museum, café, and VIP lounge. If true, this would mark the second Louis Vuitton flagship in Tsim Sha Tsui, following the upgraded Harbour City location, and potentially the fourth store in the Tsim Sha Tsui–West Kowloon area after Harbour City, The Peninsula, and Elements. Both New World Development and LVMH have neither confirmed nor denied these rumors.Interestingly, K11 MUSEA has recently accelerated brand relocations, particularly on the side facing the Avenue of Stars, adjacent to Cartier, Saint Laurent, Gucci, and the Regent Hong Kong Hotel. The original MoMA Design Store has relocated, and the large retail space is now undergoing renovation.

Notably, Prada also reportedly plans to open a new 8,000 sq. ft. (approx. 740㎡) store at K11 MUSEA in July 2024. By the end of 2024, Prada’s Hong Kong stores had decreased from a peak of nine to six, making this potentially the first new store opening in years.The “counter-cyclical” business logic that attracts top-tier international brands to K11 MUSEA is twofold:Rental Costs: According to CBRE data, average rent along Tsim Sha Tsui’s main shopping streets fell 45% compared with 2019, presenting opportunistic timing for luxury brands to secure prime locations.Mall Advantages: As a rising star in Tsim Sha Tsui, K11 MUSEA offers the newest property conditions, the highest tourist foot traffic, fastest performance growth, and the strongest artistic atmosphere.Over the past year, brands such as Saint Laurent and Loewe have upgraded and reopened their stores. A limited-time Rolex pop-up is also set to launch in the atrium. New World Development confidently stated in its latest 2024/2025 mid-year report that K11 MUSEA will host more luxury brand arrivals or store expansions in the next 12 months.Even if New World Development faces temporary difficulties and uses some core assets, including K11 MUSEA, as collateral for financing, these normal funding measures do not affect the mall’s current or future performance. Instead, they can yield positive outcomes such as increased sales, rental income, property value enhancement, stronger flagship influence, and greater synergy with other K11 projects.

Another rumor about Louis Vuitton at K11 MUSEA traces back to the 2023 end-of-year 2024 Early Autumn Men’s Fashion Show held on the Avenue of Stars, when a collaboration intent was established. The key figure behind Louis Vuitton’s first Hong Kong fashion show shining over Victoria Harbour was then-CEO Henry Cheng.Market-Adaptive Commercial ExpansionBefore 2022, New World Development’s commercial expansion relied primarily on heavy-asset models, either wholly owned land acquisitions or joint developments. Operational management of in-service and under-construction malls, offices, and serviced residences was mainly handled by K11 Group, including K11 MUSEA, Shanghai K11, Wuhan K11, Shenyang K11 Select, 11 SKIES in Hong Kong Aerospace City, the new K11 on Huaihai Middle Road, Hangzhou K11 in Wangjiang New Town, and Shenzhen K11 ECOAST co-developed with China Merchants Shekou.Some projects, such as Ningbo K11, THE PARK by K11 Select, and Han Zone in Wuhan Hanyang Central Cultural District, are operated directly by New World China, the group’s mainland flagship.Since 2022, as the “cultural retail pioneer” under New World Development, K11 Group has accelerated light-asset expansion. Examples include Shanghai Pudong K11 Select (co-operated with Shanghai Pudong Group), Xiamen K11 Select (co-operated with Xiamen Metro), and several K11 Select locations in Wuxi, Huzhou, and Wenzhou.

This upgraded K11 Select product line better fits light-asset models and appeals to younger consumers.This strategic shift aims to reduce burden, improve efficiency, and leverage the K11 brand’s market influence to expand commercial scale and recurring revenue. It also marks a preliminary step toward transforming K11 Group into a professional asset management company with potentially greater commercial independence.When Henry Cheng stepped down as CEO in September 2024, he fully devoted himself to K11 Group, focusing on leading the team, developing cultural retail potential, optimizing asset management, diversifying commercial content, and creating flagship projects.Examples include the soon-to-open Shenzhen K11 ECOAST, emphasizing cultural and artistic uniqueness over pure luxury positioning, and the upcoming 2025 Xiamen K11 Select, integrating coastal wetland ecological landscapes and signing strong international brands across fashion, beauty, and dining. Shanghai Pudong K11 Select, Wuxi K11 Select, and Huzhou K11 Select continue advancing, emphasizing art, ecological integration, and cultural heritage.Mid-Year Financial Performance and Strategic Outlook.New World Development’s 2024/2025 mid-year report shows property investment revenue of HKD 2.558 billion, down 4.3% year-on-year—a strong result given the weak market. Compared with peers, the group still has significant growth potential in operational property income and asset return. As more projects are completed and light-asset K11 operations commence, recurring rental revenue is expected to rise steadily.

Retail expansion will further enhance cash flow and generate positive spillover for related businesses.The full-year FY2024 results reported a HKD 19.683 billion loss, primarily due to deferred revenue recognition from projects delivered in FY2023 and non-cash impairment charges for investment and development properties, including goodwill. Core operating profit decreased by 18% to HKD 6.898 billion, within normal fluctuations.The group’s main challenge is not the loss itself but high debt under high borrowing costs amid weak market conditions. By mid-2024, through divesting non-core assets, the group reduced its debt ratio; net gearing (excluding perpetual bonds) was ~55% at June 2024. Mid-year results show the dual strategy of business growth and financial optimization is effective: operational businesses grew, management and capital expenditures declined 9% and 35%, and HKD 7.8 billion in bank loans were repaid.Given the stabilizing mainland property market, the group raised its sales target from HKD 11 billion to HKD 14 billion, further improving cash flow. Combined with the group’s strong reputation in Hong Kong and mainland China, government and financial support, and a recovering luxury retail market in Hong Kong, New World Development is well-positioned to navigate the “thorny path.”In the coming years, we will witness multiple K11 projects debut in Shenzhen, Guangzhou, Xiamen, Shanghai, and Hangzhou. In Hong Kong, “the muse by the sea” will welcome even more global luxury brands, while a new Aviation Port Art Mall will offer visitors a cultural and artistic “Sky City” experience infused with Chinese characteristics.