Perspective

Asia Market Update: November 2020 (Issue 132)

Hong Kong – Office

Investment activity gathers momentum – Central registered a negative absorption of 452,700 sq ft in the third quarter as the Securities and Futures Commission vacated six and a half floors at Cheung Kong Centre after relocating to Hong Kong East. Sullivan and Cromwell moved out of 9 Queen’s Road Central but remained in the district, leasing 14,000 sq ft at Alexandra House. With the district’s vacancy increasing to 7.3% from 5.2% in the previous quarter, rents fell by -4.8% q-o-q, bringing the year-to-date decline to -14.8%, according to JLL.

In the largest office transaction recorded so far this year, a consortium of investors including Schroder Pamfleet and Gaw Capital Partners entered into an agreement with Swire Properties to acquire the CityPlaza One office tower in Hong Kong East. The purchase price of HK$9.845 billion or HK$15,609 per sq ft is roughly 20% lower than the transacted price for CityPlaza Three and Four just a year ago. Meanwhile, in the strata-titled sales market, Hopson Development acquired a whole floor (25,695 sq ft) at The Center in Central for HK$980 million (HK$38,000 per sq ft).

Hong Kong – Retail

Retail podiums sought after – Retail consumption slumped -12.9% y-o-y to HK$26 billion in September, marking the twentieth consecutive month of contraction. According to the Hong Kong Retail Management Association, nearly one in four brands surveyed said they will make lay-offs after the government’s wage subsidies end in November (24 brands operating 2,400 stores and employing 48,000 staff in Hong Kong responded to the survey).

Duty-free store DFS renewed its lease on the 57,000 sq ft-premises at Chinachem Golden Plaza in Tsimshatsui East, based on a rental structure that shall vary depending on how shopper footfall compares with 2018 levels, ranging from HK$2.1 million per month if footfall is 90% lower to HK$8.3 million per month if it is 20% higher. At the last renewal in 2017 the rent was set at HK$6.9 million per month.

Several retail podiums transacted during the month. A local investor acquired three-storeys at Downtown 38 in To Kwa Wan for HK$300 million (HK$14,340 per sq ft) from the original developers, Sun Hung Kai Properties and Urban Renewal Authority. Meanwhile, the ground and first floor premises of Shau Kei Wan Centre reportedly changed hands for HK$320 million (HK$10,000 per sq ft), with the seller breaking even since acquiring the property three years ago.

Hong Kong - Residential

Residential sector resilient – Buying sentiment for mass residential properties remains buoyant. Hong Kong Ferry Holdings and Empire Group sold about 70% of 123 flats on the sales day of the second phase of Starfront Royale in Tuen Mun, whilst New World Development sold out all 343 units on offer at The Pavilia Farm II in Shatin within a day of launch. The discounted price of the units ranges from HK$17,900 to HK$23,000 per sq ft saleable.

In view of a resilient residential market, some developers are eyeing redevelopment of commercial buildings into mixed-use projects with residential components. Sing Pao Investment, a local family office, sold the Sing Pao Building in North Point for HK$1.7 billion. The buyers, Cifi Holdings and Wang On Group, also acquired an adjacent site (111 King’s Road) for HK$180 million, with the intention to combine the two sites for redevelopment into a composite commercial and residential (C&R) building, for which the A.V. equates to roughly HK$15,108 per sq ft.

Singapore – Office

Low pre-commitment levels – Since the start of the pandemic, pre-leasing of new CBD developments has slowed to a crawl. CapitaSpring and Afro-Asia I-Mark achieved 35% and 60% respectively, due to pre-COVID deals. However, other buildings under construction, such as Central Boulevard Towers, Guoco Midtown and Hub Synergy Point, are marketing their spaces with limited results. The refurbished 139 Cecil Street is still vacant after more than a year.

However, leasing activity in existing Raffles Place buildings has been surprisingly brisk, especially for medium-sized occupiers. Around 30 transactions have been concluded in this traditional office core over the past few weeks and average rents range between S$9 per sq ft to S$12 per sq ft, which is higher than all other locations except Marina Bay. Prospective tenants for mid-sized units will be offered the widest choice in 55 Market Street, Republic Plaza, 30 Raffles Place, PLUS and Income@Raffles. Larger occupiers will have to look towards Marina Bay, where average rents range between S$10.5 per sq ft to S$12.5 per sq ft.

Singapore – Retail

Rejuvenation coming to Orchard Road – The Singapore Retailers Association, Urban Redevelopment Authority, Singapore Tourism Board and National Parks Board jointly revealed rejuvenation plans for Orchard Road. The 2.4km stretch will be divided into sub-precincts such as arts and culture, a youth hub and a garden district, whilst an open-air carpark in Grange Road will be redeveloped to house an independent cinema, F&B space and event spaces to ensure the site is active year round. Mixed-use developments will be permitted above the upcoming Thomson-East Coast Line Orchard MRT interchange station, which is connected to Orchard Road via side streets.

The initiative follows the closing of several major retailers in past months, the latest being the162-year-old Robinsons department store at The Heeren and Raffles City Shopping Centre. Downtown retailers face challenges from suburban malls and online sales, amplified by social distancing measures. Online sales have picked up from just 5% of total sales in 2018 and 5.8% in 2019 to 13.1% in the first nine months of 2020. The highest online sales performance to date was 18.7% (S$479 million) of total sales, recorded in June 2020.

Singapore – Residential

Transactions pick up in Sentosa – Some non-landed homes in Sentosa cost half what they did at the peak in 2007 and, in recent years, the island has seen fewer new projects than other prime locations such as Districts 1, 2, 9, 10 and 11.

This pricing now seems to be attracting buyers, especially locals, with 41 transactions concluded year-to-date, a healthy increase on the 30 transactions for the whole of 2019. (In the past 10 years, the highest record was 204 transactions in 2010 and the lowest was 27 in 2014.) Activity has been concentrated in three developments, namely The Oceanfront @ Sentosa Cove, The Coast at Sentosa Cove and The Berth By the Cove. On a per-square-foot basis, the lowest price was for a 2,045 sq ft unit at the Berth by The Cove, which sold for S$1,134 per sq ft in October (the highest ever price in the development was S$2,200 per sq ft for a 1,905 sq ft unit in 2007).

Shanghai - Office

Rental pressure – Coupled by the impact of Covid-19, the large amount of new supply is placing more pressure on rental performance in the city. Core and suburban rents fell 1.29% and 1.92% q-o-q to end the third quarter at RMB 9.29 and RMB 6.38 per sqm per day respectively, according to Cushman and Wakefield. The number of transactions of greater than 2,000 sqm increased this quarter - 70% of which were cost-saving relocations from the CBD. Notable moves included Hilton leasing 8,000 sqm in Qiantan Center in Pudong at RMB 6 per sqm per day effective.

Shanghai – Retail

Renewed confidence – A spending surge during China’s “golden week” holiday highlighted the rebound in consumption after the pandemic ravaged the economy early in the year. The city’s in-store retail sales hit RMB 66 billion during the eight-day holiday, up 12.2% y-o-y, according to the Shanghai Municipal Commission of Commerce. Prime vacancy rates fell in Q3, as some centres were able to replenish their roster of retailers, with East Nanjing Road and Middle Huaihai Road falling 2.8% and 1.4% respectively, according to Cushman and Wakefield. Overall mall vacancy rate stands at 11.5%.

The F&B, fashion and entertainment sectors expanded the most aggressively in Q3, accounting for two-thirds of the newly leased space. Athleisure brands catering to Millennials and Gen Z are driving footfall in leading malls. Domestic designer brands’ online platform ICY opened an offline store in Raffles City and IAPM; Solestage, a high-end sneaker brand, opened its first Chinese flagship store in Middle Huaihai Road and French Jewelry house, Korloff, opened in Shanghai Avenue Mall.

Shanghai – Residential

Sentiment recovered – The residential market has recovered to pre-COVID-19 levels. First-hand commodity residential supply increased 22% y-o-y as developers accelerated their sales. New high-end sales volume totalled 209,000 sqm in Q3, an increase of 24% y-o-y, even as the large stock of second-hand high-end properties in the city’s central area offers potential buyers alternatives to the first-hand market. Top transactions in November featured Tomson Riviera in Lujiazui for RMB 263,400 per sqm, Hysun II in Huangpu district at RMB 156,418 per sqm and Lakeville V in Huangpu district for RMB 154,790 per sqm.

Blackstone acquired Central Garden, a 41,600 sqm serviced apartment project located in Putuo district, for RMB 1 billion (RMB 24,038 per sqm) from domestic developer Sunac. The purchaser appointed Hong Kong-listed residential developer, China SCE’s new residential platform, Funlive, to be the operator.

 

The information in this market update is current as at Nov 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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