Perspective

Asia Market Update: October 2020 (Issue 131)

Hong Kong – Office

Mainland Chinese occupiers active – Grade A office rents are in their longest downcycle since the Global Financial Crisis, according to Savills. Nevertheless, the rate of decline slowed to -3.4% in the third quarter, as leasing activity showed signs of picking-up. Mainland Chinese companies were among the more active occupiers, with a preference for premises in traditional office districts. Examples include China Dill Group leasing 12,787 sq ft at China Resources Building in Wanchai and Huboi Asia Limited leasing 6,789 sq ft at 100 Queen’s Road Central in Central.

The strata-titled market recorded eight transactions in September among a portfolio of 50 prime office buildings tracked by Midland Realty, reportedly the highest level in four months. Transaction volume year-to-date, however, fell 54% y-o-y with only 52 strata-titled units changing hands, during the ongoing COVID-19 pandemic and a lacklustre economic environment.

Hong Kong – Retail

Landlords squeezed – Retail sales plunged 13.1% y-o-y in August, marking the nineteenth consecutive month of decline. The magnitude of fall narrowed from the previous month (-23.1% y-o-y) partly due to a lower base of comparison in 2019.

In view of rising vacancy levels, high street landlords are cutting rents aggressively. In Causeway Bay, a shop at Kai Chiu Road has been leased to SaSa for HK$600,000 a month (HK$130 per sq ft), representing a 40% discount from the last lease. In Mongkok, Hang Lung Properties has leased a G/F shop of 18,000 sq ft at Gala Place to Footlocker for HK$2 million a month. The premises, together with the 1/F and 2/F were previously occupied by H&M, who paid HK$9 million a month at the peak of the market.

Ginza-style retail buildings are seeing more investors offloading their stock at a loss. A whole-floor at OLIV in Causeway Bay was recently sold for HK$40 million (HK$20,700 per sq ft), 44% lower than the purchase price six years ago. Similarly, a floor at The Sharp was sold for HK$30 million, representing a 47% loss since the seller acquired the asset seven years ago.

Hong Kong - Residential

Spotlight on new launches – The mass residential market stabilised in September, with capital values up 0.11% m-o-m, reversing the decline recorded the previous month. Home sales increased 15% m-o-m to 5,024, as the third wave of COVID-19 infections receded.

In view of improved buying sentiment, developers are pushing ahead with new project launches. Yuanzhong Group, which acquired the entire serviced apartment block Eight Kwai Fong in Happy Valley from New World Development in June, is putting up the project for sale. Comprising 139 units ranging from 250 sq ft to 450 sq ft saleable area, the developer is reportedly looking to offload a first batch of 50 units at an average price of HK$33,000 per sq ft. Meanwhile, the spotlight is expected to shine on New World Development’s upcoming project in Shatin, The Pavilia Farm, as its first batch of 391 flats for sale has already received over 15,000 registrations of intent ahead of its launch. The after-discount price tag for the units ranges from HK$17,100 to HK$24,500 per sq ft, saleable.

Singapore – Office

Rents continue to fall – Grade A CBD office rents fell 5.1% q-o-q to S$9.84 per sq ft in 3Q. Some occupiers are seeking short-term renewals or partial hand-back of space. For example, Citi gave up 90,000 sq ft across 3 floors in Asia Square Tower 1. However, Amazon chanced on this opportunity to take it on more attractive rental terms. Similarly, QBE Insurance took up 31,000 sq ft vacated by Grab.

Chinese tech firms have emerged as a new demand driver. ByteDance, the parent of TikTok, plans to make Singapore its regional hub. Tencent and Alibaba are also expanding. In May, Alibaba acquired a 50% stake in the S$1.68 billion AXA Tower, earmarked for redevelopment. Cushman forecasts up to 500,000 sq ft of take-up by tech firms in 2021, especially in newer developments with large floor plates.

PIL Building, which was put for sale by an Expression-of-Interest exercise for S$350 million, had its second round of bids in the first week of October and negotiation is ongoing. Mainboard-listed MYP has sold ABI Plaza for S$200 million to a private fund managed by CapitaLand Fund Management. MYP acquired the building in 2011 for S$165.8 million, however the sales price is still 23% lower than the property’s valuation of S$260.1 million.

Singapore – Retail

Gentler decline in August’s sales – Accordingly to Singapore Department of Statistics, retail sales fell 5.7% y-o-y in August, less steep than the 8.5% y-o-y decline recorded in July. Food and alcohol dived the most at 42.6% y-o-y while supermarkets and hypermarkets continue to see sales rising, with growth of 21.9% y-o-y. Sales of furniture, household equipment, computers and telecommunications equipment also had a boost on the back of higher demand as people work from home, registering a growth of between 16% to 19% y-o-y.

Some bars have been innovating to mitigate lost alcohol sales due to the earlier closing time of 10.30pm and 50% reduction in seating capacity. Jeyll and Hyde introduced all-day dining as well as offered online cocktail-making classes with customisable bottled cocktails that can be given as gifts. Good Luck Beerhouse added burgers to their menu and adopted a reservation system to limit dining time to 2 hours so as to accommodate more customers. P.O.D Bistro overhauled their old menu and introduced more cuisine such as Thai food. Temple Cellars introduced earlier opening hours, swapped high bar tables to low ones and provided free Wifi for guests to work there.

Citibank will open its largest wealth advisory hub at 268 Orchard Road, Singapore’s premier shopping belt. It will occupy an area of 30,000 sq ft across 4 floors. About 300 staff will move from the bank’s existing 12 branches to the hub when it opens in December.

Singapore – Residential

Private home prices rise – Private home prices rose 0.8% q-o-q in the third quarter and are now 2.7% above the 2018 peak and just 0.5% below the all-time peak of 2013. Private homes in the Rest of Central Region (RCR) accounted for 68% of total non-landed transactions. Best performing projects in RCR include Forett At Bukit TImah (236 units sold), JadeScape (155 units), The Woodleigh Residences (140 units) and Daintree Residences (135 units).

Outside Central Region (OCR) saw good sales volumes in 3Q, such as Florence Residence (156 units) and Treasure at Tampines (296 units). Prices in the Core Central Region fell due to the absence of overseas investors and discounts offered at selected launches such as Leedon Green (where the median price fell 8.9%), 8 Saint Thomas (-11%), Fourth Avenue Residences (-4%) and The Avenir (-5%).

With effect from 28th September, private housing developers are no longer able to re-issue the Option-to-Purchase (OTP) to a buyer for the same unit within 12 months after the expiry of the prior OTP. This should encourage buyers to fully consider their financial means before committing to a home purchase. Under this ruling, OTP will expire within three weeks after the Sale and Purchase Agreement and title deeds are delivered to a potential buyer.

Shanghai - Office

More new supply – Leasing demand picked up in 3Q, with the overall market recording net absorption of 157,169 sqm (37,360 sqm core and 119,809 sqm non-core). Four new projects were completed, adding 358,991 sqm to the market. Two are in core submarkets: Innovation Mix in Changning and Embankment Centre in Lujiazui. The other two are in the non-core submarkets of Qiantan and Minhang. Despite the increasing leasing demand, the new supply pushed vacancies in the Core Jing’an, New Huangpu, Lujiazui and Core Xuhui area up to 11.6%, 19.1%, 21.1% and 7.5% respectively, according to Cushman and Wakefield. Notable new lettings include Swire Properties taking 3,000 sqm in New Bund Center in Pudong at RMB 6 per sqm per day effective, and Maquet, a German medical care company, leasing 2,000 sqm in SOHO Gubei in Changning at RMB 6.5 per sqm per day.

Domestic buyers took the wheel in 3Q, accounting for 75% of total sales volume. A domestic cloud-computing chip-design company, Montage Technology, acquired an office tower for RMB 1.07 billion (approximately RMB 43,000 per sqm for above ground GFA at 24,747 sqm) from a domestic JV between chemical company Shanghai Dinghe and Kunlun Insurance Group for self-use. The property, 181 Caobao Road, is near Guilin Park station (Line 12) in Xuhui district.

Shanghai – Retail

Leasing picks up – Leasing activity showed resilience in 3Q, with net absorption of 230,920 sqm and average first floor rents in prime areas increasing 0.1% q-o-q to RMB 65 per sqm per day. The grand opening in late August of the 340,000 sqm Nanxiang Incity Mega in Jiading district attracted 300,000 visitors on the first day and achieved RMB 300 million in sales in the first month. The mall boasts that over 40% of its 400 brands are making their debut in the Shanghai market.

Retailers, international and domestic, are actively seeking new stores in prime areas. Notable openings include UFC’s flagship store in Century Avenue in Pudong; Arc’teryx taking 800 sqm on Middle Huaihai Road in Changning; and Wow Colour opening in East Nanjing Road in Huangpu.

Shanghai – Residential

Recovery continues – High-end residential transaction volume increased by 27% m-o-m in September, with prices showing a drop of 2.7% m-o-m. Top transactions featured Hysun II in Huangpu district at RMB 137,362 per sqm, Villa V (RMB 165,280) and The Lakeville (RMB 148,950) both in Middle Huaihai Road. A new household registration regulation has relaxed hukou restrictions for graduates of four top universities in Shanghai – this is expected to attract more elites to stay in the city.

Evergrande Group purchased a site for RMB 2.3 billion (RMB 51,000 per sqm) on East Daming Road in Hongkou district, opposite the International Cruise Terminal Station (Line 12). The developer paid an 11% premium for the land and will develop 45,000 sqm, with 45% residential, 35% retail and 20% office. High-end residential units in the vicinity are selling for RMB 100,000 – 110,000 per sqm.

 

The information in this market update is current as at Oct 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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