Perspective

Asia Market Update: September 2020 (Issue 130)

Hong Kong – Office

HKMA eases mortgage caps – Hong Kong’s Monetary Authority has relaxed loan-to-value ratio cap for non-residential properties from 40% to 50%, with effect from 20 August 2020. The move is expected to offer relief to property owners in the face of downward valuation adjustments and may lift transaction volumes. Among the few en-bloc sales recorded in August, Kim Sing Commercial Building in Shamshuipo changed hands for HK$140 million (HK$6,370 per sq ft), 20% below the seller’s original asking price.

On the leasing front, decentralisation remains a key theme as occupiers continue to seek cost-effective options. Asset manager Blue Pool Capital has relocated from Exchange Square in Central to lease 16,000 sq ft at Hysan Place in Causeway Bay, while law firm Kennedys is leaving Hong Kong Club Building to take up 11,000 sq ft at Oxford House in Quarry Bay. With tenants in Central surrendering 29,200 sq ft of space in July, the vacancy rate has reached 5.7%. For the full year, Central rents are forecast to decline up to 30%, according to JLL.

Hong Kong – Retail

Supermarkets expand – The slump in retail sales in July narrowed to -23% y-o-y despite the city being struck by a third wave of COVID-19 infections. Supermarkets continue to buck the trend as locals stock up on daily necessities, with retail sales up 28% y-o-y. Boosted by continuous strong performance, supermarkets are expanding their footprint in the city. Granville Road in Tsimshatsui, which historically has been a main tourist shopping destination, recently saw a supermarket tenant leasing a 5,000-sq ft shop for HK$300,000 per month.

Non-core retail properties are attracting interest from both end-users and investors, as bid-ask spreads have narrowed. The commercial podium of residential development Billionaire Royale was sold by Chinachem to UOW College Hong Kong for HK$457 million (HK$9,726 per sq ft), to be used for educational purposes. Meanwhile, the retail podium of West Park in Shamshuipo has been reportedly sold to a local investor for HK$150 million (HK$22,659 per sq ft).

Hong Kong - Residential

Spotlight on luxury – Notwithstanding the economic and political challenges, home buying sentiment remains upbeat in the luxury segment. According to the Rating and Valuation Department, capital values of luxury properties jumped 9.3% in the year-to-date, significantly outperforming the mass residential sector (up 1.3%), with the primary market drawing strong interest from high net worth buyers. Kerry Properties have sold six houses at Mont Rouge, Kowloon Tong since May, amounting to HK$1.36 billion (average HK$64,500 per sq ft saleable area). Dukes Place at Jardine’s Lookout has offloaded eight units since the start of the year, realising over HK$1.55 billion in sales.

Hang Lung Properties won the bid for the US government’s residential site at Shouson Hill for HK$2.56 billion. Comprising six blocks totalling 94,796 sq ft, the property has been used as consular staff housing since 1983. The A.V. of HK$54,138 per sq ft is 37% less than what China Resources Land paid for a neighbouring project in 2018.

Singapore – Office

Lower demand with telecommuting – Several large leasing transactions were signed in recent weeks, including Foodpanda parent Delivery Hero’s lease of over 50,000 sq ft at Afro-Asia i-Mark; Agency for Integrated Care’s lease of 19,000 sq ft at Robinson 77; and QBE Insurance and Toyota Motor Asia Pacific’s lease of one floor each (27,000 sf to 30,000 sq ft) at Guoco Tower. Nevertheless, overall leasing demand remains soft as telecommuting continues to be the default mode of operation.

Most corporate occupiers have put expansion plans on hold as they focus on renewing existing leases whilst re-evaluating their long-term space needs. Rents are expected to moderate further towards the end of this year as landlords compete to attract and retain key tenants.

Some commercial investment activities are underway. A fund managed by CapitaLand is believed to be conducting due diligence on ABI Plaza, a freehold 12-storey office building at a price of S$206 million. This is much lower than the initial asking price of S$280 million. PIL Building has been put on the market through an Expression-of-Interest exercise for S$350 million. Eight bids were received in the first round.

Singapore – Retail

Retail sales pick up – July retail sales improved 27% m-o-m from a low base, as most physical stores were closed from April to mid-June. Department stores increased sales by 109% and motor vehicle sales rose 100%, as bidding for certificates of entitlement resumed. Apparel and footwear sales re-bounded by 82%, whilst sales in all other retail segments increased, except for supermarkets and convenience stores. The pick-up is due to pent-up demand from local shoppers and, in view of the ongoing travel restrictions, retail sales are unlikely to return to the overall growth territory during the pandemic.

Some retailers are expanding their bricks-and-mortar presence. Maison 21G, a perfume atelier, opened a small boutique at Ion Orchard in August. This is in addition to their flagship store in Duxton Road and a counter at BHG Bugis Junction department store. With these outlets, shoppers can smell various scents through their masks – an activity still not possible online. Harvey Norman, an electronics and furniture chain, will also add three new stores to its current 12. Their management believes physical and online store must coexist in order to offer maximum shopping experience. 

Singapore – Residential

Transaction volume increases – As sales galleries reopened from mid-June, new private home sales increased significantly on the back of pent-up demand and low interest rates. 487 units were sold in May during the circuit breaker lockdown, increasing to 998 units in June and 1,080 units in July, the highest since November last year, but still 8.4% lower y-o-y. While there were no new launches in July, previously launched projects saw strong take-up with some selling more than 50 units.

With travel restrictions in place since March, local buyers form the bulk of the overall private home purchases. However, there were more purchases made by overseas buyers since the reopening of the Singapore economy. Non-landed purchases by Singapore Permanent Residents (81.6%) and Non-Residents (18.4%) increased to 365 units compared with 294 units in January.

Shanghai - Office

Emerging hotspots – MNC occupiers continue to reduce space, while adopting flexible working models, whereas a few domestic companies are seeking to leverage current market conditions and expand on competitive terms. Decentralisation continues to play a key role in leasing activities. The emerging New Bund cluster in Pudong district is still a hotspot for major new leases, attracting prominent tenants with rents of RMB 4.5-5.5 per sqm per day. Notable relocations include Siemens and Cstone Pharmaceuticals, taking 18,800 sqm and 4,600 sqm respectively in New Bund Times Square; and Cango, a Warburg Pincus-backed local automotive transaction service platform, taking 8,400 sqm in New Bund Oriental Plaza II.

Some developers are capturing new sites, reflecting their optimistic outlook of the market. For example, New World Development won an auction near Middle Huaihai Road in Huangpu District with an RMB 4.11 billion bid (RMB 59,825 per sqm). The 17,171 sqm site will yield up to 68,700 sqm (65% office and 35% retail) of above ground GFA upon its expected completion in 2023.

Shanghai – Retail

More consumption-boosting initiatives – Shanghai Municipal Commission of Commerce revealed that July retail sales were RMB 129.72 billion, a y-o-y increase of 5.9%. The city is to stage four more shopping galas this year, as part of the government’s consumption-boosting policies to stimulate consumption in areas such as automobiles, home decoration, home appliances as well as gold and jewelery. The galas will take place in symbolic landmarks to honor the upcoming Mid-autumn and New Years Eve festivals; an online shopping carnival will take place from November to December with efforts to re-enact the success of May 5th ’s “Double Five” shopping festival that brought in US$2.2 billion of sales in 24 hours.

Notable recent openings include Saucony, a heritage shoe brand, opening its first store in Shanghai Super Brand Mall in Pudong district and domestic beer brand, UTOBEERA, taking space in Sinan Mansions in Huangpu District.

Shanghai – Residential

New supply hits 7-month high – In August, 8,817 units of new first-hand supply entered the market and transaction volume increased 12.7% to 7,804 units, reflecting optimistic sentiment among both home buyers and real estate developers, according to Savills. New launches of 1,535 high-end units (over 1.05 million sqm) entered the market, a spike of 162% from July and the highest monthly figure in 2020, according to Centaline. As a traditional high-end submarket, Huangpu district boasted the majority of top transactions, including The Lakeville at RMB 161,100 per sqm, Hysun at RMB 145,707 per sqm and The Paragon at RMB 144,442 per sqm.

On the investment front, Greystar purchased an 8,000-sqm land plot in Qiujiang Road at Jing’an district. The site is located one block away from Zhongxing Road metro station (Lines 3/4/8) and is expected to yield more than 500 rental homes.

 

The information in this market update is current as at Sep 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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