Perspective

Asia Market Update: March 2021 (Issue 136)

Hong Kong – Office

Chinese corporates in expansion mode – Deutsche Bank has not renewed its lease on three of the nine floors it occupies at International Commerce Centre in Kowloon. Handing back around 104,000 sq ft will save the bank about HK$7.8 million per month. As some multinational corporates shrink their footprint in the city, PRC counterparts are in expansion mode. According to the Land Registry, Bank of Dongguan has committed to lease 11,000 sq ft on 25/F Two International Finance Centre in Central, and FountainVest Partners (Asia), a private equity fund focused on investing in China, will be taking up the balance of space on the floor.

The government’s 2021-22 Land Sale Programme has three commercial sites for sale via public tender. Two are located at the North Apron and the Runway in Kai Tak, and can yield a commercial/hotel development of 3.9 million sq ft. The remaining site, located in Tung Chung and unsuccessfully tendered last year, can provide 1.3 million sq ft of commercial GFA.

Hong Kong – Retail

Proliferation of shop closures – Retail sales fell by 14% y-o-y in January, continuing a two-year long streak of decline attributed to the social unrest in 2019 and the COVID-19 pandemic last year. About 7% of sales were generated from online transactions, representing a 92% y-o-y jump.

Several retailers have announced closures of shops in Hong Kong. Mass fashion retailer Giordano plans to close three stores in the coming three months, as their sales from Hong Kong and Macau dived 53% y-o-y over the last financial year. UA Cinemas has shut all seven of its theatres across Hong Kong, including K11 Musea in Tsimshatsui, Times Square in Causeway Bay and Moko in Mongkok. However, its K11 Musea location, with 12 screens and 1,708 seats, has been taken over by Multiplex Cinema Limited, which reportedly acquired the lease and operations for HK$56 million.

Hong Kong - Residential

Luxury homes sought after – Buoyed by gains in the equity market, demand for luxury homes has picked up since the start of the year. In the rental market, Wharf has leased two houses at 11 Plantation Road at The Peak for HK$1.35 million (HK$125 per sq ft) and HK$880,000 (HK$114 per sq ft), respectively, per month. And in the sales market, CK Asset Holdings sold a flat at 21 Borrett Road in Mid-levels for HK$459 million (HK$136,000 per sq ft), which set a record high in Asia, in terms of unit price.

The government sold a residential development site (NKIL 6604) at the Runway in Kai Tak to CK Asset Holdings for HK$10.28 billion. The A.V. of HK$15,861 per sq ft for the sea-facing site fell within market expectations and was 22% higher than the price China Overseas paid for an adjoining site (NKIL 6603) two months earlier.

Singapore – Office

Path to recovery – Although Singapore’s GDP fell by 5.4% in 2020, CBD Grade A office rents fell by ‘only’ 9.3% - a fraction of the 49% drop during the Global Financial Crisis. The key demand drivers in 2021 are expected to be the progressive deployment of Covid-19 vaccines and the gradual reopening of the key economies around the world. Anticipating improvements in the finance and manufacturing sectors, the median forecast from 24 economists surveyed by the Monetary Authority of Singapore is for GDP to increase by 5.8% this year.

The CBD is set to transform as older office buildings make way for new developments, with sustainability and workspace flexibility front and centre. Examples include the redevelopment of AXA Tower (700,000 sq ft), Keppel Towers (430,000 sq ft), Fuji Xerox Towers (354,000 sq ft), Tower Fifteen (210,000 sq ft) and some others. New buildings are required to obtain the BCA Green Mark Certification (Singapore’s environmental sustainability standard).

Singapore – Retail

Steep slump in January – January’s retail sales fell 6.1% y-o-y, a steeper drop than December’s -3.3%, due to the higher base from Jan 2020, which included Lunar New Year and was just before the impact of Covid-19. Food and Alcohol registered the largest decline at 43.6% y-o-y, followed by Department Stores at 36.1% and Cosmestics, Toiletries & Medical Goods at 31.8%. On the other hand, Furniture & Household Equipment registered the highest increase at 25.9%, followed by Computer & Telecommunication Equipments at 24.8% and Motor Vehicles at 10.3%. Total retail sales in January were S$3.8 billion, of which 10.3% was bought online. Most retail is expected to remain in the negative territory due to the effects of low visitor arrivals.

Singapore – Residential

7th month of resale price rises – Overall prices rose 1% m-o-m in February. Resale private homes in Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR) rose 1.5%, 0.7% and 1.1% respectively. The strong secondary market is being driven by higher prices and diminishing unsold inventory in new residential launches. These older properties also appeal to buyers seeking larger units at lower price per-square-foot than those in new developments.

The sales volume of resale private homes inched up to 1,399 units in February, from 1,394 in January, despite a slowdown of marketing activities during Lunar New Year. The highest transacted prices were S$25 million for a unit at The Marq on Paterson Hil – CCR; S$5.1 million at Camelot By-The-Water – RCR, and S$2.7 million at Tierra Vue – OCR.

Shanghai - Office

TMT giants expand – Benefiting from the booming e-commerce sector, TMT companies have been responsible for several recent notable lettings. A gaming company called HyperGryph committed to 1,000 sqm in Shibei One Center, Jing’an at RMB 6.4 /sqm/day; Amazon-Beijing Telecom Service took 9,000 sqm in New Bund Center, Pudong at RMB 6.0 /sqm/day; and, following TMT giants Meituan and Bilibili’s land acquisitions in Yangpu, Byte Dance recently leased 32,000 sqm in Springs Center Phase I in New Jiangwan Town, Yangpu for its e-commerce headquarters.

In the investment market, prime business parks are attracting attention from institutional investors. Warburg Pincus-backed commercial operator Creater acquired a 14,518 sqm block in Zhangjiang Micro-electronics business park for RMB 32,500 per sqm as its first heavy-asset office investment. The property is located next to a building acquired by Keppel for RMB 34,000 per sqm in 2019.

Shanghai – Retail

Robust consumption over the holiday – Consumers splurged on restaurants, shopping malls and theaters over Chinese New Year as travel restrictions made it difficult to make annual trips home. According to Shanghai Municipal Commission of Commerce, the 7-day holiday saw RMB 20.4 billion of city-wide offline consumption, a y-o-y increase of 82%. At the same time, Shanghai cinema box office sales hit a record high of RMB 366 million, ranking in first place among all cities in China.

On the investment front, Link REIT acquired GIC’s 50% share in Qibao Vanke Plaza at a valuation of RMB 42,995 per sqm. The property is a decentralized mega shopping mall launched in 2016 and operated by Vanke, currently with 98% occupancy. A joint venture between Kerry (40%) and GIC (60%) won a mixed-use development site in Jinqiao, Pudong, for approximately RMB 6 billion (A.V. RMB 23,832 per sqm). The plot has potential above-ground GFA of 252,000 sqm for a shopping mall, offices and residential. This follows on the success of Kerry’s proven Parkside decentralized shopping destination in Pudong.

Shanghai – Residential

Fewer transactions due to new regulations – The cooler market, due to CNY and the recently implemented housing regulations, saw no new supply in February and city-wide second-hand transactions of only 18,996 units, a q-o-q decrease of 57% according to Centaline. Over 50% of these are small units of 50 – 90 sqm for self-use. Second-hand high-end transactions recorded a 50% decrease q-o-q and the average price fell 6.7% to RMB 128,639 per sqm. Purchasers are mostly looking in traditional high-end submarkets within the inner ring road including Xintiandi, Lujiazui and West Nanjing Road.

 

The information in this market update is current as at Mar 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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