Perspective

Asia Market Update: January 2021 (Issue 134)

Hong Kong – Office

Co-working sector consolidating – Victory Offices has pulled out of Hong Kong after operating in the city for just over a year. The Australian co-working firm occupied a 25,000 sq ft-office on the 76th floor of The Center. Some more seasoned operators are taking advantage of the tenant-favourable market and reduced competition to increase their footprint. Compass Offices has leased an additional 22,500 sq ft at Infinitus Plaza, Sheung Wan, expanding from two to four floors.

Several sizeable strata-titled transactions were concluded in the fourth quarter, including 4/F Far East Centre for HK$238 million (HK$22,000 per sq ft), half a floor at Bank of America Tower for HK$145 million (HK$24,300 per sq ft) and a whole floor at Enterprise Square Three in Kowloon Bay for HK$200 million (HK$12,400 per sq ft).

The government announced it will sell a 1.4-hectare site on Caroline Hill Road in Causeway Bay in 4Q2021, which can yield up to one million sq ft of commercial space. The scale of the development will be on a par with that of Times Square. This land sale will follow the tender of the 4.8-hectare New Central Harbourfront site, which is scheduled to close in June.

Hong Kong – Retail

Tenant retention is key – Retail sales plunged by 25% y-o-y between January and November 2020, however sales in November were only down by a relatively modest 4% y-o-y.

Landlords are entirely focused on securing tenants at the expense of rents. A street-fronting shop of 1,038-sq ft at Entertainment Building in Central has reportedly been leased to Oriental Watch Company for HK$500,000 per month, 50% less than under the previous lease. The tenant saved HK1.5 million a month by relocating from 100 Queen’s Road Central where they were paying HK$2 million a month. Those premises, of 20,000 sq ft, are now leased to Don Don Donki at HK$1.2 million.

Investment activity has been subdued during the holiday season. In one notable transaction, shops at Kam Wah Building in Yaumatei changed hands for HK$170 million (HK$6,503 per sq ft), at a passing yield of 2.3%. The seller is a local restaurateur, Victoria Harbour Restaurant Group.

Hong Kong - Residential

Developers keen on prime sites – Wharf Development bid HK$12 billion to beat six other contenders to win a luxury residential development site at Mansfield Road on The Peak. The A.V. of HK$46,272 per sq ft sets a record for residential sites sold by the government, being 10% higher than the amount paid by Sun Hung Kai Properties for a site on Mount Kellett Road 14 years earlier. This acquisition will double Wharf Development’s landbank on The Peak to over 500,000 sq ft.

Hang Lung Properties was unable to complete as scheduled an intended HK$2.6 billion purchase of a residential site at 37 Shouson Hill Road in Island South, due to the obligation imposed by the Chinese government on the US consulate, the owner, to obtain diplomatic approval of the sale.

Singapore – Office

Outlook improving – According to the Singapore Business Federation’s recent survey, sentiment is improving among firms, as the country has made good progress in managing the pandemic and entered phase 3 of its reopening. The government also announced that vaccines will be provided to all residents within nine months. The Ministry of Trade and Industry is forecasting growth of between 4% to 6% in 2021. Should economic activity continue to improve, the office market is poised to benefit.

Leasing activity in the technology and financial services sectors picked up in 4Q2020 and preliminary estimates suggest that the reduction of occupied office space has slowed. The market registered a net absorption of -14,800 sq ft in the fourth quarter, with no new completions. Net absorption for the whole of 2020 amounted to -560,000 sq ft and net supply was 320,000 sq ft. The vacancy rate rose to 6.0%, from 4.5% a year earlier.

Keppel Land is reportedly selling its 100% interest in Keppel Bay Tower to Keppel REIT for S$657.2 million, inclusive of rental support of up to S$3.2 million.

Singapore – Retail

Retail slump eases – Sales dipped just 1.9% y-o-y in November compared to -8.5% y-o-y in October, due to major sales events such as Black Friday and Single’s Day. Food and alcohol sales fell by 37.3% y-o-y and cosmetics, toiletries and medical goods by 27.5%. However, computer and telecommunications sales performed well with an increase of 29% y-o-y (following a decline of 18.5% y-o-y in October) and furniture and household equipment sales rose by 28.5%.

Although the challenges of safe distancing measures and travel restrictions remain, shopper traffic recovered to 60-80% of pre-Covid-19 levels in the last quarter of 2020. Leasing activity has increased slightly in the F&B and supermarket segments, however prominent retailers such Robinsons and Marks & Spencer have announced store closures, while AW Lab, a multi-brand sportswear retailer, has now exited Singapore after its debut in 2017.

Frasers Centrepoint Trust is reportedly selling Anchorpoint, suburban strata-titled shopping centre for S$110 million to an un-disclosed investor. The proposed transaction is expected to complete by March 2021.

Singapore – Residential

Sales momentum to continue – Overall non-landed home prices rose 2.1% q-o-q in the last quarter of 2020, marking the highest quarterly increase since the second quarter of 2018. Prices in Core Central Region (CCR) prime areas rose 3.3% q-o-q in the last quarter, reversing the losses of the first three quarters of the year. The rise in CCR index was accompanied by an increase of high value transactions of S$2,700 per sq ft and above during the quarter. For 2020 as a whole, non-landed home prices in CCR slipped 0.2% y-o-y, while prices in RCR and OCR rose by 5.1% y-o-y and 3.1% y-o-y respectively.

On the other hand, landed home prices fell 2.1% q-o-q in the last quarter of 2020, compared to 3.7% in the previous quarter. However for 2020 as a whole, landed home prices inched up 0.6% y-o-y.

Last month, a 752,000 sq ft hilltop site that formerly housed the Caldecott Broadcast Centre on Andrew Road was sold for S$280.9 million to an entity jointly owned by Perennial Real Estate Holdings and its chairman Mr Kuok Khoon Hong.

Shanghai - Office

New supply launched in Qiantan – Four Grade A office projects totalling 324,513 sqm entered the market in 4Q. The largest is New Bund Center, a landmark project in Qiantan submarket, with 168,000 sqm GFA, of which 50% has been pre-let. Net absorption reached 280,329 sqm (114,892 sqm core and 165,437 sqm non-core) according to Cushman and Wakefield. Professional Services, Finance and TMT are the top three driving forces of leasing activity, with recent commitments including Tuopu Bank leasing 6,000 sqm in New Bund Center at RMB 5.95/sqm/day effective; Tezan Design taking 6,000 sqm in Lumina, Xuhui Riverside at RMB 4.23/sqm/day and Alibaba leasing 1,500 sqm in World Trade Tower, Huangpu District at RMB 6.54/sqm.

On the investment front, Greenland sold Block T4 of Greenland Bund Center in Huangpu District to CCB Life, a subsidiary of China Construction Bank for RMB 5.5 billion (93,537 per sqm).

Shanghai – Retail

Stronger domestic consumption – Ongoing restrictions on travel abroad have increased domestic consumption demand. According to the Shanghai Municipal Bureau of Statistics, the city’s consumer goods sales reached RMB171 billion in November 2020, increasing by 17.1% y-o-y. Many domestic and international retailers continue to expand their businesses, especially in the electric cars, lifestyle, and children’s entertainment sectors. Demand for prime space was strong in 4Q, with net absorption reaching 344,528 sqm. The active leasing market ensured that citywide overall vacancy rose only 0.5 percentage points q-o-q to 9.9%, with Nanjing West Road, Xujiahui and Huaihai Middle Road submarkets standing at 4.1%, 4.8% and 7.1% respectively.

Notable openings included Hennessy’s first global concept bar, Blends by Hennessy, in 800 sqm at Bund 18, and French pastry shop Lenôtre’s first China flagship store in Xintiandi Style.

Shanghai – Residential

Increased transactions in second-hand market – Increasing demand from upgraders and insufficient supply from new developments pushed up transactions in the second-hand residential market to 38,900 units in December - an increase of 21% q-o-q and 97% y-o-y (Savills).

The land market has been continuously active as local authorities look to accelerate the collection of land sales revenue. In one notable deal, Shanghai Construction Group teamed up with Shanghai Municipal Investment Group to secure land in the Yu Garden submarket of Huangpu for RMB 17.6 billion. The A.V. of RMB 89,567 per sqm was a record high for residential sites since 2016. Planned aboveground GFA is 196,300 sqm (50,000 sqm retail, 131,300 sqm residential and 15,000 sqm amenities) and the residential will be developed as Phase II of Aroma Garden. Recent transactions in Phase I reached RMB 145,000 - 210,000 per sqm.

 

The information in this market update is current as at Jan 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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