Perspective

Asia Market Update: February 2021 (Issue 135)

Hong Kong – Office

Multi-nationals downsizing – Affected by the ongoing COVID-19 pandemic restrictions, some multi-national occupiers are shrinking their footprint in the city. Standard Chartered will not renew its lease on eight floors (60,000 sq ft) of its headquarters Standard Chartered Bank Building in Central. The lease for four of the floors will expire in October, whilst the remaining four floors will be handed back in April 2022. The bank will also seek to lease out three floors it owns at Millennium City in Kwun Tong. The cost-cutting measures will save about HK$6 million per month and income from Millennium City could generate HK$1.5 million per month. Meanwhile, BNP Paribas is also looking to downsize its leased premises at Two IFC.

The investment market is being driven by end-user demand. A local family-owned company reportedly acquired a floor at New World Development’s 888 Lai Chi Kok Road for HK$340 million (HK$13,920 per sq ft) for self-use. A large proportion of smaller units at the same development were purchased by end-users when the project was launched in December 2020.

Hong Kong – Retail

Investors looking for higher yields – Retail sales plunged by 24% y-o-y in 2020, representing the worst performance on record. Overall restaurant receipts shrank to HK$79.4 billion, down 29% y-o-y, as sweeping social-distancing measures took a toll on the city’s catering sector. Bars were the worst performer, with income slumping 48% on the year.

Some investors looking for higher yields are snapping up sizeable non-discretionary retail premises. Among the notable transactions, a 28,439 sq ft 1/F shop with a G/F entrance in Sai Kung was bought for HK$400 million. The premises are leased to a supermarket with an entry yield of 6.1%. Also, Siu Lun Court Shopping Centre in Tuen Mun reportedly changed hands for HK$280 million (HK$6,098 per sq ft), representing an initial yield of 3.8%.

Hong Kong - Residential

Resilience in luxury market – A consortium led by Wharf Development beat four other contenders to win a residential development site on The Peak for HK$7.25 billion, after Wharf acquired an adjoining land parcel two months ago. The A.V. of HK$50,010 per sq ft sets a new record for a residential site sold via government tender in Hong Kong. The two sites combined could yield up to 404,000 sq ft of new units.

In the first hand market, a flat at Mount Nicholson Phase 3 on the Peak changed hands for HK$490 million (HK$114,906 per sq ft saleable), while three units at Central Peak in Mid-levels East were also sold for a combined HK$493 million (HK$84,322 per sq ft saleable).

In view of the pick-up in luxury residential sales activity, Wharf and Sun Hung Kai Properties announced February launches of houses at 77 Peak Road, via tender, and Phase 1 of 21 Borrett Road, Mid-levels West, respectively.

Singapore – Office

Investment sales pick up – Improving sentiment since 4Q has led to several investment deals being completed, with more in the works. In December, Keppel REIT acquired Keppel Bay Tower for S$657.2 million from Keppel Land. And in the first large-ticket office transaction in 2021, NPS and Allianz announced their joint acquisition of a 50% stake in OUE Bayfront for S$634 million, reportedly a passing yield of 3.6%. JLL expects CBD office investment sales to steadily increase due to tight new supply, which is forecasted to be only 0.5 million sq ft per annum between 2021 and 2025 - half of the average annual net absorption between 2010 and 2020.

Singapore – Retail

Worst year on record – Retail sales fell for the 23rd month in December, by 3.6% y-o-y, resulting in a full-year contraction of 15.3% and making 2020 the worst performing year since data was made available in 1985. The annual fall was twice the rate recorded during the 2009 global financial crisis (-7.8% y-o-y) and 1998 Asian financial crisis (-7.8% y-o-y). Although consumer sentiment improved with the start of phase three re-opening in December and the commencement of mass vaccinations last month, most retail sectors are expected to remain subdued in 1H due to limited domestic demand and low visitor arrivals. On a y-o-y basis, the worst affected sectors in December 2020 were food and alcohol (-35%), department stores (-22.8%) and watches & jewellery (-10.2%).

Singapore – Residential

Before cooling measures loom… – As residential prices continued to rise in January the government signalled that it is observing the market closely. This spurred buyers into action ahead of any potential new restrictions. Private home sales surged to 1,606 units, up 32% over December’s 1,217 units and the highest since July 2018’s 1,724 units. Several attractive new projects were launched, the most popular being the 1,862-unit Normanton Park, which sold 625 units. This was followed by Parc Central Residences (Executive Condominium) which sold 417 out of 700 units and The Reef at King’s Dock which sold 221/429 units. Fully 80% of these new launches are smaller properties below 800 sq ft and most new launches are located away from downtown core, or at the city fringe.

Shanghai - Office

Relocation of Asian headquarters to Shanghai – International firms are giving more attention to China, driven by its expanding markets and continued economic growth. Despite the pandemic, foreign direct investment in Shanghai increased by 6.8% y-o-y in the first 11 months of 2020. Firms in the financial and retail sectors in particular are opting to relocate their Greater China or Asia-Pacific headquarters closer to the market. Asset manager Vanguard Group will move its HQ to Shanghai from Hong Kong, while L’Oréal is planning to downsize its Hong Kong regional office and move positions to mainland China and Singapore.

Following Meituan’s RMB 6.5 billion acquisition of a land along Yangpu Riverside to build its Shanghai headquarters, Bilibili paid RMB 8.1 billion for an adjoining plot. Both were attracted by the district government’s courting of TMT giants.

Shanghai – Retail

Upgrading in core areas – Xintiandi Style I, formerly Xintiandi Nanli, started operations after a 20-month renovation by introducing several brands’ first stores in China, including Tom Dixon, Stussy and Lenôtre. A food court named Foodie Social occupies 3,000 sqm with 22 restaurants, 10 boutiques and lots of social space to attract Generation Z customers, who are driving the demand for luxury brands in China.

The SOE owner of Shanghai No.6 Department Store will invest RMB 700 million to redevelop the 11,000 sqm property into a shopping mall. The department store has a 70-year history and is located in the core Xujiahui area. Construction is expected to take at least four years.

Shanghai – Residential

Housing regulations implemented – With the recent surge in both first-hand and second-hand residential markets, Shanghai’s government introduced a series of cooling regulations. These include restrictions on new purchases due to divorce, extension of the higher VAT dutiable period on the sale of houses from two to five years, and changing the housing lottery into a scoring system to give priority to first-time buyers. Banks were also advised to strictly control the growth of individual mortgages.

In the rental market citywide vacancy rates fell 1.5% in Q4 2020 to 13.6%, down 0.8% y-o-y. High-end serviced apartment rents picked up to average RMB198 per sqm per month, up 0.5% q-o-q, but still down 2.5% y-o-y, according to Savills. Operators and landlords are focused on improving services to stand-out in a fiercely competitive market. Most operators increased their domestic tenant ratios, with new tenants coming from diverse backgrounds - some seeking prestige, others convenience - with many unable to find units in the traditional residential market that meet their needs.

 

The information in this market update is current as at Feb 2021 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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