Asia Real Estate Market Update - October 2021

HONG KONG

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Hong Kong Office

Flexible workplace operators expanding – The Grade A office occupier market shrank by 279,000 sq ft in the third quarter, a further contraction on Q2’s negative 80,694 sq ft, according to JLL. Overall vacancy climbed for the ninth consecutive quarter, to 9.8%, the highest level in 17 years. Several flexible workplace operators expanded, with Compass Offices taking 16,200 sq ft at Lee Garden One (Manulife Plaza) in Causeway Bay and 11,900 sq ft at Infinitus Plaza in Sheung Wan; while Regus leased another floor of 24,500 sq ft at The Gateway Tower 5 in Tsimshatsui. Hong Kong-based crypto firm HashKey leased 10,150 sq ft at Three Exchange Square in Central for a reported HK$120 per sq ft per month.

New World Development sold three floors of its new office development at 888 Lai Chi Kok Road in Cheung Sha Wan for HK$1.2 billion (HK$17,500 per sq ft); and a local family office offloaded the office and hotel portion of Chuang’s Enterprises Building in Wanchai for HK$415 million (HK$9,256 per sq ft).

Hong Kong Retail

Retailers active in Central – Leasing demand for prime street shops remained sluggish amid the current travel bans and absence of inbound tourists. According to Savills, rentals of prime street shops and shopping centres held firm, up 0.4% and 1.2% q-o-q in Q3, respectively. Retailers were active in Central, with Samsung leasing 1,654 sq ft on the ground floor of China Building for a monthly rent of HK$302 per sq ft, and Lululemon taking 5,748 sq ft on the ground floor of H Queen’s for HK$104 per sq ft.

In the investment market, Citibank sold a ground floor shop at Wheelock House in Central for HK$710 million (HK$82,905 per sq ft) and will lease back the premises. A local family office offloaded shops at Leighton Road in Causeway Bay for HK$180 million (HK$64,000 per sq ft) - an initial yield of 2.9%.

Hong Kong Residential

Developers pile into land sales – In her latest Policy Address, Carrie Lam, the Chief Executive of Hong Kong, highlighted the government’s determination to tackle housing inadequacies by increasing long-term public housing supply. Meanwhile, new homebuyers continued to snap up new flats launched in the private market. Kwai Chung Group’s Mangrove in Hunghom sold 128 of 130 units on launch day, while Henderson Land’s THE HOLBORN in Quarry Bay sold almost half of the 128 units on offer. La Marina in Wong Chuk Hang, jointly developed by Sino Group, Kerry Properties and MTRC, sold over 85% of 521 units available.

The Urban Renewal Authority’s latest redevelopment project in To Kwa Wan attracted 36 expressions of interest from developers, including New World Development, Nan Fung Group and Country Garden, whilst MTRC’s development opportunity atop Tung Chung Traction Substation was also highly sought after, with 35 EOIs received.

 

SINGAPORE

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Singapore Office

Grade A to B rental gap widens – With CBD Grade A office rents at S$9.52 per sq ft and Grade B at S$7.79 per sq ft, the gap has widened to 18.2% from 12.2% back in 2015. This is largely due to the progress of the flexible-workspace sector, which has achieved growth of c.31% CAGR in the last six years and now accounts for approximately 5% of CBD Grade A occupied space.

The rapid expansion of technology companies such as Amazon, Twitter and ByteDance is driving take-up of CBD Grade A offices vacated by financial companies. Meanwhile, ageing Grade B buildings with smaller floor plates recorded vacancy increases to 9.3% in the first half of 2021, as occupiers with smaller office requirements have more options now, including flexible workspaces in Grade A buildings.

Singapore Retail

CBD outlets affected again – As work-from-home will be the default again for all employees who are able to do so from 27 Sep to 24 Oct, CBD retailers and F&B operators voiced dismay. Prior to the announcement, retail business in the CBD had been gradually improving after anti-Covid-19 measures were relaxed in August.  Sales are expected to drop between 20% to 50% as footfall is reduced significantly. The Soup Spoon will close three of its five outlets in the CBD, whilst other F&B operators, such as Pink Fish, turn to rely more on their online platforms.

On the other hand, suburban malls located near residential estates offering essential trades such as supermarkets and F&B are less affected. Five S-REITs with significant exposure to suburban-focused retail malls have in fact averaged 7.6% in total returns in the year to date, despite, or partly because of, the intermittent restrictions introduced throughout the year.

Singapore Residential

Prices rise again – Private home prices rose moderately for the sixth consecutive quarter in Q3. The 0.9% increase was supported by a 2.5% gain in landed homes, compared with 0.3% in the previous quarter. On a y-o-y basis, overall private home prices have improved 7.3%.

The luxury segment has seen more large deals. A 6,049 sq ft unit at Les Maisons Nassim was sold for S$35 million (S$5,786 per sq ft) in September, and nine units at 15 Holland Hill were sold for more than S$5 million each over the summer. Private home sales in the core central region jumped around 25% in the second quarter to 1,930 units, the strongest performance since Q4 2010, when 2,014 units were sold.

 

SHANGHAI

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Shanghai Office

Improving market – Six new developments entered the market in Q3, adding 426,000 sqm of new supply. Net absorption rose 30% q-o-q to 449,000 sqm, whilst citywide vacancy edged down 0.7% to 17.1%. The average rent grew by 0.6%, driven by maturing locations such as Qiantan, as well as established CBD submarkets. The leading tenants were in finance, life sciences and pharmaceuticals.

Hysan is to acquire City Link, an office and retail project located one station away from West Nanjing Road, for RMB 3.5 billion (circa RMB 51,000 per sqm on leasable area). The vendor is a joint venture between CK Asset Holdings and two Shanghai SOEs.

Shanghai Retail

New mall openings – During the October 1 to 7 National Holiday the city's offline consumption reached RMB 51 billion, an increase of 23.4% over 2020 and 11.2% over 2019. The top three business districts were West Nanjing Rd, East Nanjing Rd, and Lujiazui.

Ruihong Tiandi, a 550,000 sqm retail complex built by Shui On Land near North Bund, opened the final 157,000 sqm of its phased development in September. The Hall of the Sun has attracted multinational brands to open their first Shanghai stores, such as MUJI’s meal solution supermarket and Hamleys, the British toy retailer. The mall features experiential retail spaces that blend social activities with food, sports, pets and kids’ entertainment.

Swire Properties launched its sixth project in mainland China, Taikoo Li in Qiantan, a 120,000 sqm shopping mall developed jointly with Shanghai Lujiazui Group. Taikoo Li gives luxury brands an open and flexible floorplan to express their individual design concepts, and features a 450-meter AI digitalized rooftop running track. The mall should help reinforce Qiantan's position as an international commercial hub.

Shanghai Industrial

Take-up exceeds supply – Citywide net absorption climbed to 365,000 sqm in Q3. With just 109,000 sqm of new business park supply, the vacancy rate decreased from 16.8% to 14.2%. TMT, life sciences, pharmaceuticals and the 3Cs (computers, communications and consumer electronics) are the major drivers of leasing activity.

In the logistics leasing market 3PLs (3rd party logistics providers) continued to expand their footprints in Songjiang, Fengxian and Jinshan. With no new supply recorded in Q3, the citywide logistics property vacancy rate decreased by 3.4% to 5.8%, as rentals remained unchanged at RMB 48.2/sqm/month.

Shanghai Residential

Housing market cooling down – The year’s second batch of centralized land auctions was announced in September, with the successful sale of 20 plots despite the tighter bank lending environment. Seven plots, in non-core districts of Songjiang, Fengxian and Baoshan, were withdrawn, and it is thought that developers may have been put off by the self-holding requirements that in some cases would prevent the winning bidder from selling the commercial portion of the development for up to 20 years.

The second-hand housing market is also cooling. Since the housing bureau implemented a new regulation in July to review second-hand residential prices, over half the units on online trading platforms were delisted. This led to a 23% drop in transaction volumes in August. Since units can presently only be traded under a government-guided price, the city’s average second-hand housing price dropped 8.25% m-o-m to RMB 38,207 per sqm.


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