Perspective

Asia Market Update: December 2020 (Issue 133)

Hong Kong – Office

Commercial double stamp duty abolished – The office occupier market contracted by two million sq ft for the full year, in what was the worst performance on record, according to Cushman & Wakefield. Overall vacancy climbed to 12.1%, the highest level since 2005, as availability in all districts except Hong Kong East climbed into double digits in the fourth quarter. Amid weak demand, office rentals declined for the seventh consecutive quarter, down 18.7% y-o-y, dragged down by a 21% y-o-y drop in Central rents.

In her recent policy address, the Hong Kong Chief Executive abolished the Double Ad Valorem Stamp Duty on non-residential property transactions, reducing the maximum rate to 4.25% from 8.5%. Following the announcement, New World Development’s 888 Lai Chi Kok Road Grade A office project drew strong investor interest, with all 30 strata-titled units in the first batch sold within an hour of launch. The average price was HK$13,000 per sq ft, with units ranging from HK$7.75 million to HK$33.4 million.

Hong Kong – Retail

Aggressive high street rental cuts – Retail sales were down 8.8% y-o-y in October, the first single-digit fall since June 2019, albeit off a low base of comparison due to last year’s social unrest. Still, the retail industry is expected to remain in the doldrums for the rest of the year, despite the holiday season, due to the fourth wave of COVID-19 infections.

Landlords of high street shops in prime retail areas are cutting rents aggressively to attract tenants. Following the closure of Gap’s flagship store at LHT Tower in Central, the landlord Luk Hoi Tung is marketing the 13,000 sq ft-premises for lease at a monthly rental of HK$3.3 million, representing a 40% cut from Gap’s last renewal rent. Meanwhile, Hip Shing Hong is marketing an 8,160 sq ft premises spanning basement, G/F and 1/F at 17-19 Wellington Street, previously occupied by Tsui Wah Restaurant, as subdivided units at a 70% reduction from the market peak in 2014.

With the reduction in stamp duty and loosening of mortgage borrowing restrictions, there is investor interest in small-scale retail podiums being sold by developers seeking to exit non-core assets. At least 11 such podiums held by developers have changed hands in 2020, amounting to a combined consideration of over HK$2 billion.

Hong Kong - Residential

Developers actively land banking – In the government land sales market, China Overseas Land and Investment outbid nine other contenders to win a residential development site at Kai Tak for HK$4.27 billion. The transacted A.V. of HK$13,009 per sq ft was above the upper end of market estimates. Meanwhile, on Hong Kong Island, The Development Studio acquired a residential site at 125 Repulse Bay Road for HK$1 billion, representing an A.V. of HK$32,757 per sq ft. The proposed development is understood to be a 13-storey block of six 6,000 sq ft duplexes.

The residential market has shown remarkable resilience this year, with prices recording only a muted decline of roughly 6%, according to government figures. Home sales volumes, averaging 4,900 per month, have dropped by 5% y-o-y in the year-to-date.

Singapore – Office

Resilient physical workspace demand – As more companies look to downsize their workspace and adopt a core-flex work model, several large occupiers such as UBS Bank, ride-hailing firm Grab, food delivery provider Foodpanda and gaming firm Razer remain committed to moving into their new office headquarters. Others, such as AXA Insurance, Prudential and Fuji Xerox, who will all be displaced by redevelopment of their current offices, have reiterated their intentions to identify alternative physical workspace in the CBD.

As sentiment improves, other large leasing commitments are expected to be announced soon. Amazon is understood to be taking 90,000 sq ft at Asia Square Tower 1; CIMB Bank will lease more than 50,000 sq ft at 30 Raffles Place; and Boston Consulting Group will move from SingLand Tower to 46,700 sq ft at 79 Robinson Road.

Activities with flexible workspace operators have also picked up. The Great Room will occupy about 37,000 sq ft space in the upcoming Afro Asia i-Mark building and The Executive Centre will take the two highest floors in One Raffles Quay North Tower next year. JustCo is reportedly negotiating with Alibaba at 5One Central during the redevelopment period of AXA Tower (50% of which was bought by Alibaba earlier this year).

Singapore – Retail

Gentler decline in October sales – The decline in retail sales slowed in October to -8.6% m-o-m, compared to -10.7% fall in September. The sharpest y-o-y segmental decline was food and alcohol at -44.7%, followed by department stores at -35.2%, cosmetics, toiletries and medical goods at 30%, and apparel and footwear at 26.3%. Supermarkets and hypermarkets rose 22.3% y-o-y, followed by furniture and household equipment at +12.5% and recreational goods at +9.8%. Despite rebounding from the lows of the circuit breaker lockdown, retail sales are still far from pre-COVID levels.

The Monetary Authority of Singapore expects the economy to grow by 5.5% in 2021, assuming global vaccination programmes effectively curb the spread of COVID-19. The projection is established from a low base, as the Ministry of Trade and Industry expects the economy to shrink 6% to 6.5% this year. With the recovery anticipated in 2021, retail sales should begin to pick up.

Singapore – Residential

Sales volume continue to rise – November new home sales rose 16.7% m-o-m, boosted by launches at The Linq @ Beauty World and The Landmark. These two projects transacted 228 units, or about 30% of the all new sales, continuing momentum from September when Penrose, Verdale and Myra were released to the market. At Ki Residence, 143 units out of 660 were sold in a recent virtual launch.

Given the encouraging momentum, a full year target of 9,500 units could be achieved – not far short of last year’s 9,912 new home sales.

Shanghai - Office

Increasing international presence – International companies remained active in the core leasing market, accounting for 52% of leases YTD versus 48% in 2019, whilst domestic firms accounted for 70% of demand in outer-ring areas. Take up in decentralized areas more than doubled q-o-q, contributing 45% of citywide take-up in Q3. The financial sector continued to lead core office demand this quarter, followed by professional services and retail & trade, accounting for 28%, 22% and 15% of total leased space respectively. Online entertainment and media also showed substantial growth. Riot Games, a US-based video game developer, established its APAC HQ at HKRI in Jing’an district, leasing 5,000 sqm at around RMB 12 per sqm per day; and American digital employee-recognition firm, Kudos, took 4,000 sqm in One Museum Place in Jing’an district at RMB 10 per sqm per day effective.

Shanghai Guosheng Group acquired a 36,513 sqm office tower on North Huangpu Road for RMB 1.9 billion (approximately RMB 54,520 per sqm) from Shanghai Tomorrow Square Development Company via auction on Alibaba’s online marketplace. The property is close to People’s Square station (lines 1/2/8) in Huangpu district.

Shanghai – Retail

Mall rejuvenations – Hang Lung Properties rolled up its sleeves to upgrade Grand Gateway 66 in Xujiahui. The facelift includes Cartier and LV luxury-brands’ façades and injection of new global retailers such as Michael Kors, LongChamp, Tory Burch and Moschino. A newly built bridge connects the two stand-alone buildings, opening up space for pop-up stores and events. Another rejuvenation feature, “The Lane”, presents an internal street with restaurants and cafes. The project re-opened in November after three years of renovation with a retail occupancy rate of 94%.

The reopening of Shanghai Plaza pays tribute to the city’s mission to transform and reinvigorate core historical streets. The project, in the heart of Middle Huaihai Road in Huangpu district, boasts a new “multi-functional” combination of 36% catering and entertainment, 8% fashion and other retail and 56% We-Work office space across seven newly decorated floors. Notable tenants include Michelin-starred restaurant “Fuhui-Kun”, Huawei Experience Store + and AKOMA, a Japanese skin care brand’s first Chinese flagship store.

Elsewhere, women’s clothing brand, L.K.Bennett and Korean millennial-focused ADLV opened their first stores in Shanghai in IAPM, Xujiahui.

Shanghai – Residential

Recovery in high-end leasing market – Although high-end rents fell a further 1.2% q-o-q, demand picked up as international travel resumed and citywide vacancy rates fell 2.8% q-o-q to 15.1%, the first drop of the year according to Savills. Lujiazui Group launched Eacqua Residences in the emerging Qiantan business cluster to service the needs for incoming corporations in the area. The 57-unit “British glam” styled property is walking distance to Shanghai Oriental Sports Center (Line 6/8/11) and is located in East Haiyang road in Pudong district. The project offers two to four-room apartments with a GFA of 269 to 438 sqm and boasts a spa, gym, fusion restaurant, yoga room and communal rest-zone. Despite the new units, serviced apartment vacancy rates fell 2.9 percentage points q-o-q and brought the city’s total stock to 9,202 units of which 16.2% are vacant.

 

The information in this market update is current as at Dec 2020 and does not necessarily reflect subsequent market events and conditions. This market briefing is provided for information purposes only and articles do not provide individual financial, legal, tax or investment advice. Past performance is not indicative of future performance. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance. The statements and statistics contained herein are based on material believed to be reliable but are not guaranteed to be accurate or complete. Investments strategies should be evaluated relative to each individual’s objective in consultation with their legal, investment and/or tax advisor. Schroder Pamfleet is not liable for any errors or omissions in the information or for any loss or damaged suffered.


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