Asia Market Update: May 2021 (Issue 138)

Hong Kong – Office

Quarry Bay attracts decentralising tenants – Julius Baer has preleased 100,000 sq ft on four floors of Swire Properties’ new office development Two Taikoo Place in Quarry Bay which is scheduled for completion in 2022. The bank will relocate from three floors at International Finance Centre and two floors at Exchange Square when the leases expire in 2023. Rents in Quarry Bay are still 60% cheaper than in Central.

A joint-venture between Hysan Development and Chinachem won the government tender for a commercial development site on Caroline Hill Road, Causeway Bay for HK$19.8 billion. The accommodation value of HK$18,374 per sq ft was 15% higher than the upper-end of market estimates. The development will add a million sq ft of office and retail GFA to Hysan’s existing four million sq ft-portfolio in Causeway Bay.

Hong Kong – Retail

Landlords introduce entertainment – March retail sales were up 20% y-o-y, following a 30% y-o-y -rebound in February. With improving vaccination rates and the gradual lifting of social gathering rules and travel restrictions, retail performance should continue to improve.

Landlords are introducing entertainment trades to enhance the appeal of their shopping centres. Sino Land brought Japan’s Nissin Cup Noodles Museum in to a 10,000 sq ft unit at China Hong Kong City in Tsimshatsui, whilst Link REIT leased 50,000 sq ft at Oi Man Plaza in Homantin to 18 Challenge Karting – the largest indoor go-karting venue in Hong Kong. A new 17,000 sq ft ice rink facility has opened at The Lohas, the MTRC’s mall in Tseung Kwan O.

New World Development reportedly sold the 22,700 sq ft ground floor and basement of Pearl City Mansion, Causeway Bay to mainland Chinese investor Henglilong for HK$1.3 billion (HK$57,400 per sq ft), with a reversionary yield of 3.6%.

Hong Kong - Residential

Record leasing deal – A 7,022 sq ft-house at 73 Mount Kellett Road, The Peak, has been leased for HK$1.6 million a month (HK$228 per sq ft) - the most expensive residential lease recorded in the city. Earlier this year, a house at 11 Plantation Road was leased for HK$1.35 million (HK$125 per sq ft).

New projects launched for sale include South Land atop Wong Chuk Hang Station, jointly developed by Road King Infrastructure, Ping An Real Estate and MTRC, and One Soho in Mongkok, developed by Sino Land, Urban Renewal Authority and Chuang’s Consortium. Both launches were well-received, with South Land selling all 240 flats on offer and One Soho disposing of 121 of the 168 apartments released on launch day.

The CCL index which tracks the movement of secondary residential prices in the city increased 1.3% m-o-m in March and is now just 4% shy of the 2019 historical peak.

Singapore – Office

Fifth straight quarterly rent decline – CBD Grade A rents dipped 1.2% q-o-q to S$9.40 per sq ft in the first quarter of 2021, a milder decline compared to the previous quarter’s -1.8%. Raffles Place, Orchard Road and Beach/Middle Road rents were down 1.1% q-o-q, whereas City Hall and Tanjong Pagar recorded sharper declines of 1.5%. Rents of newer and higher grade office buildings were more stable, as demand for such space remains strong. Older buildings face more challenges, despite limited new supply in the CBD.

Maxwell House, a dated office building was sold for S$276.8 million to a consortium comprising Chip Eng Seng Corporation, SingHaiyi Investments and Chuan Investments. Due to strong competition between bidders, the sale was transacted above the asking price of S$268 million. Another CBD office property at 108 Robinson Road was sold for S$143 million to PGIM. The seller is Sin Capital Group, which occupies almost all the space in the building.

Singapore – Retail

Retail sales up again – Retail sales rose 6.2% y-o-y in March, pipping the 5.3% y-o-y increase in February. Watch and jewellery sales surged 60% y-o-y, with apparel and footwear up 35% and recreational goods +28%. On the other hand, sales at supermarkets & hypermarkets fell 14% y-o-y, with cosmetics, toiletries & medical goods down 13% and food & alcohol -8.4%.

While April’s retail sales figures are expected to show further improvements, due to the low base effect from 2020, May’s performance is likely to dip, as Singapore recently re-imposed phase 2’s safe distancing measures.

Singapore – Residential

Condo rents still going up – Rents of condominium units rose 1.3% m-o-m (5.2% y-o-y) in April, the fourth straight month of increase, but remain 11.9% below the peak in January 2013. April’s rental volume dipped 3.1% m-o-m to 5,100 units from 5,262 units in March, but this is still 13.5% higher than the five year average for the month of April.

The upward pressure is due to limited supply of new developments to meet demand from locals who have sold their homes and require temporary accommodation, and an increase in Malaysians staying in Singapore for work, as they cannot commute across the border due to travel restrictions.

Shanghai - Office

Cost-saving drives demand – Overall net absorption reached 298,000 sqm in Q1, driven by cost saving and consolidation in the decentralized market. Domestic TMT tenants remain active - for example, online education platform Yuanfudao leased 2,400 sqm in Innovation Mix, Changning at RMB 7.5 /sqm/day (effective 6.0 /sqm/day).

In the land market, a consortium of Shanghai Industrial Investment, Shanghai Construction Group and Shanghai Chengtou Group was the sole and successful bidder (at RMB 9.1billion / A.V. RMB 26,005 per sqm) for a mixed-use plot in North Bund. The site is zoned for a 480-metre-tall office development, with 350,158 sqm of above-ground GFA, 41,520 sqm of underground retail and 62,280 sqm of car parking. Construction will take until 2027.

Shanghai – Retail

Surge in Labour Day holiday spending – Shanghai welcomed 16.8 million tourists during the recent five-day holiday, up 139% y-o-y, and the average occupancy rate for city-wide hotels reached 71%, compared with 26% in 2020 and 56% in 2019. Boosted by “Double Five” Shopping Festival promotions, the city’s bricks-and-mortar consumption reached RMB 19.7billion, up 30% on 2020 and 9.6% higher than 2019, according to local government data. The top three performing districts were West Nanjing Road, East Nanjing Road and Lujiazui, with luxury goods, cosmetics and automobiles all in strong demand.

Mitsui Fudosan opened its first LaLaport shopping centre outside Japan in Jinqiao, Pudong. The 55,000 sqm mall on six floors features several first stores in China including the Bandai Namco VS Park, offering a variety of sports and games, and a Soltilo Familia Soccer School. It also has an 18-meter-tall Gundam statue.

Shanghai – Residential

Strong April sales – Twenty-eight new projects were launched for sale in April, bringing 8,487 units to market, of which 6,506 were transacted, with 14 projects sold out on their first day. Three-bedroom units accounted for 64% of transactions, indicating upgrade demand from families.

In the second-hand high-end market, rumours of potential new regulations triggered more transactions in March, whereas in April only 71 units were transacted, down 29% q-o-q. The average price was RMB 134,078 per sqm, with most sales in the inner ring road traditional high-end submarket.

In the land market, a batch of 27 residential sites was published, with auctions scheduled for the third week of May.

 

The information in this market update is current as at May 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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