Asia Market Update: April 2021 (Issue 137)

Hong Kong – Office

Largest leasing transaction since 2019 – The leasing market has gained some momentum recently. Manulife has taken four office floors, totalling 145,000 sq ft, at International Trade Tower in Kwun Tong, further expanding its footprint in Kowloon East. The insurance company already occupies premises at Manulife Financial Centre, The Quayside and Manulife Tower (which it bought in 2013). In another deal, Standard & Poor’s is relocating from International Commerce Centre in Kowloon to take up 21,400 sq ft NFA at Three Exchange Square in Central.

Investment activity has been focused on strata-titled sales. The 7/F of C-BONS International Centre in Kwun Tong changed hands for HK$172 million (HK$10,200 per sq ft). The seller Baptist Hospital had already sold the 6/F of the building for HK$160 million (HK$9,500 per sq ft) in October last year. Meanwhile, a mid-floor unit at The Center in Sheung Wan was reportedly sold for HK$109 million (HK$34,800 per sq ft).

Hong Kong – Retail

High street vacancy improves – Retail sales saw a strong rebound of 30% y-o-y in February, albeit largely due to a low base of comparison. Jewellery/watches and clothing/footwear were the best performers, increasing 115% y-o-y and 89% y-o-y, respectively. Supermarkets sales, which had surged at the beginning of the pandemic, dropped 6% y-o-y.

Bolstered by the vaccination programmes and renewed discussions around travel bubbles, the leasing market saw early signs of revival over the quarter. American Eagle has committed to the G/F and 1/F of LHT Tower in Central (3,026 sq ft) for a reported monthly rental of HK$1 million. The space, together with the basement and 2/F was previously leased by Gap for HK$5.5 million. As rents have fallen, high street occupancy levels have improved, with vacancy rates in Central and Causeway tightening from 18% to 14% and 13% to 11%, respectively (Cushman & Wakefield).

New World Development sold a 13,900-sq ft retail podium at The Parkville in Tuen Mun to Wang On Group and another local investor for HK$300 million (HK$21,648 per sq ft). The buyer is reportedly looking to an uptick in local consumption and mainland Chinese-driven spending once travel bans are lifted.

Hong Kong - Residential

Upbeat sentiment drives sales – Home sales rose 23% q-o-q in the first quarter, with secondary units accounting for 80% of volume. Padded by end-user demand, the CCL index, which tracks price movements in the secondary market, increased 1.8%. Developers are lining up new projects for sale in the coming months, including Centralcon Properties’ “The Arles” with 1,335 units in Fotan and MTRC’s first phase of “The Southside” in Wong Chuk Hang, with 800 units.

The government’s pilot scheme for charging land premiums at standard rates on lease modifications for redevelopment of industrial buildings is rekindling interest from developers looking for land to build residential projects.

Singapore – Office

Banks shrink physical space – DBS, a strong player in digital banking, is giving up 75,000 sq ft in MBFC Tower 3. Standard Chartered has announced its permanment move to flexible working arrangements and is expected to reduce its office requirement in MBFC Tower 1 when the current leases expire. CIMB has layed off staff, closed its Orchard Road branch and will need only 50,000 sq ft in its new head office at 30 Raffles Place (compared with the existing 70,000 sq ft in Singapore Land Tower). Mizuho will trim 16,800 sq ft from its 105,000 sq ft at Asia Square Tower 2, and Citigroup has given up 90,000 sq ft on three floors at Asia Square Tower 1 (the space was subsequently taken by Amazon).

Some financial institutions, including UBS, HSBC and JP Morgan, have moved back offices to less expensive locations such as Changi Business Park, Mapletree Business City and Fusionopolis at One North.

Singapore – Retail

Retail sales turn positive – February retail sales rose 5.2% y-o-y after declining for 24 months (January having recorded the last drop of 6.1% y-o-y). The improved performance is attributed to strong Chinese New Year consumption and low base effect, as CNY fell in January 2020 and February this year.

Excluding sales of motor vehicles, February’s sales rose 7.7% y-o-y compared to the decline of 8.4% in January. Best performers were watches & jewellery (up 34%), apparel & footwear (32%) and supermarkets & hypermarkets (13.6%). Declines were recorded in toiletries & medical goods (-19%), optical goods & books (-10.9%) and motor vehicles (-9.1%). February’s total retail sales value was about S$3.3 billion, of which online sales comprised 10.1%.

Frasers Centrepoint Trust sold Yew Tee Point, a suburban shopping mall for S$220 million to a private equity investor.

Singapore – Residential

Luxury condos in demand – Vaccine optimism and ample liquidity spurred buyers into action after Chinese New Year. New private home sales doubled in March to 1,293 units. The prime Core Central Region (CCR) recorded new sales of 546 units (up 42.2%), which is an eight year high. Rest of Central Region (RCR) saw 385 units sold (29.8%) and Outside Central Region (OCR) recorded 362 sales (28%). In the CCR, the previous highest record was in November 2013 when 668 units were transacted.

With travel restrictions still in place, most buyers are Singaporeans and permanent residents. The newest launch, Irwell Hill Residences, sold 278 of its 540 units on its launch weekend at an average price of S$2,700 per sq ft. Another high-end project, Midtown Modern, sold 340 of 558 units for S$2,726 per sq ft. Eden, a luxury Draycott Park project developed by Swire Properties, sold 20 units en-bloc to the Tsai family from Taiwan, who are behind snack food giant Want Want China Holdings. The price was S$293 million, or S$4,827 per sq ft.

Shanghai - Office

New supply intensifies competition – Five projects completed in Q1, adding 236,633 sqm to the Grade A market. The only core area project is the refurbished JC Plaza (the old JC Mandarin Hotel) in Jing’an, which has been preleased to L'Oréal for its Shanghai headquarters. The other four new developments came on-line in Century Park, fringe Xuhui and Minhang, contributing to a 2.1% q-o-q rental decrease in non-core submarkets. Recent lettings include Zilong Game’s 3,000 sqm in Triumph Pearl Center, Changning at RMB 6.5 /sqm/day (effective RMB 4.8 /sqm/day); Mars’ 2,300 sqm in Lumina, Xuhui Riverside at RMB 4.5 (effective at RMB 3.8 /sqm/day) and Currie & Brown’s 1,000 sqm in Ocean Tower, with landlord’s fit-out, at RMB 6.5 /sqm/day (effective at RMB 5.96 /sqm/day).

Allianz and NPS acquired a 90% stake in Innov Star, a 61,506 sqm office block in Zhangjiang business park, from D&J China for RMB 2.2 billion (approximately 40,000 per sqm). The property is leased to domestic tech and finance tenants including Ping An Puhui, the consumer finance arm of the mainland insurer, mobile content aggregator Qutoutiao and Tencent-backed finance firm WeBank.

Shanghai – Retail

Prime area centre upgrades – Citywide shopping malls’ average first floor rent increased 0.7% q-o-q to RMB 28.5/sqm/day, according to Cushman & Wakefield. The increase in prime areas was 0.4%, to RMB 64/sqm/day, with limited new supply and active tenant moves during the quarter. Renovation and upgrading works continued in the prime area, with CITIC Square on West Nanjing Road under renovation to be turned into an ‘experiential boutique’ shopping centre, while renovation of the Bund Central Plaza on East Nanjing Road is expected to complete in July.

During the recent three-day Qingming holiday, 140 of the city's major retailers and F&B businesses reported a combined sales volume of RMB 1.24 billion, up 55% y-o-y, according to Shanghai’s Municipal Commission of Commerce. Catering and hospitality sales increased 55% and 98%, respectively.

Shanghai – Residential

New land supply policy – Following the central government’s policy to better regulate land supply, 22 cities in China, including four tier-1 cities, will now release residential-for-sale plots three times per year. This may increase cash flow pressure for developers, resulting in more co-investment among bidders and possibly indicating lower land premiums. Shanghai will launch its first batch of 15-20 residential sites in May.

Shanghai’s government has also implemented a concentrated program for approving first-hand residential projects. Thirty-three such developments were approved in March, with a total supply of 1,060,000 sqm in 10,006 units. Seventy-five percent of these are less than 100 sqm, for self-use purpose, and most are located in suburban areas.

 

The information in this market update is current as at Apr 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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