Asia real estate market update July 2021

Hong Kong Office

Flight-to-quality drives leasing – The occupier market contracted by 192,000 sq ft in the second quarter, an improvement on Q1’s negative 900,000 sq ft absorption, according to Cushman & Wakefield. Leasing activity was underpinned by flight-to-quality as tenants take advantage of double-digit vacancy rates and lower rental levels. Food delivery company Foodpanda leased 39,000 sq ft at Times Square in Causeway Bay, upgrading from a Grade B building in Sheung Wan; while professional services firm Grant Thornton is relocating to 21,000 sq ft at Lee Garden Two from 28 Hennessy Road in Wanchai.

The government land sale tender for Site 3 of New Central Harbourfront attracted six bids from local heavyweights, including Sun Hung Kai Properties, CK Asset and Henderson Land. The site will yield up to 1.6 million sq ft of commercial space, plus 269,000 sq ft of public areas. The market expects the tender to fetch land prices of HK$23,000 to HK$25,000 per sq ft, A.V., with the winning bidder to be selected based on their proposed design as well as the bid price. The tender results will be announced in November.

Hong Kong Retail

Suburban retail rents outperform – Retail sales continue to pick up, increasing 10.5% y-o-y in May as vaccination rates improved and social distancing rules eased. On another positive note, the city’s unemployment rate dipped to 6.0% from 6.4%. Consumer sentiment should improve further given the government’s roll-out of the digital voucher scheme, an initiative aimed at stimulating local spending.

According to Savills, the rental market is bottoming out, with prime street shop and major shopping centre rents registering increases of 0.3% and 1.2% q-o-q, respectively. Suburban shopping centres outperformed, with rents up 3.7% q-o-q, compared with unchanged levels at centres in core areas.

In the investment market, a local family office offloaded the non-discretionary retail blocks of Shek Wai Kok Commercial Complex and On Yam Shopping Centre for a combined HK$1.3 billion (averaging HK$7,514 per sq ft) at an entry yield of 4.9%. The same seller also sold 18,800 sq ft of retail premises in Jade Mansion, Yaumatei, for HK$300 million.

Hong Kong Residential

Upbeat sentiment across the board – Home sales surged by 35% y-o-y in the first half of 2021, with transaction volumes reaching HK$366 billion, the highest level since the first half of 1997.

Buyers snapped up over 90% of the 400 units on offer at China Overseas Land’s One Victoria project in Kai Tak. Meanwhile, The Pavilia Farm III in Tai Wai, jointly developed by New World and MTRC sold over 90% of the 892 units on offer within a month of launch.

Wing Tai Properties won the government land sale tender for a residential site in Fanling for HK$2.62 billion. The A.V. of HK$9,209 per sq ft was 15% higher than market estimates and 28% higher than the amount Sun Hung Kai Properties paid for a nearby site two months earlier. The land was highly sought after, with 17 bids received.


Singapore Office

Increasing office investment activities – The CBD vacancy rate rose from 4.2% to 4.6% in 2Q2021, the fifth consecutive quarter, on the back of weak demand. Nevertheless, office transactions amounted to S$1.94 billion in the first half year, compared with S$2.3 billion for the whole of 2020. The figure is still well below pre-Covid days when, in 2019, S$7.6 billion of office assets changed hands.

Recent large ticket transactions include 108 Robinson Road (S$107 million), a 30% stake in 9 Penang Road (S$295.5 million) and a portfolio of strata-titled Grade A offices in Suntec City Towers One and Two (S$197 million). Other potential transactions currently in the works are PIL Building (S$320 to S$330 million) and One George Street (S$1.25 billion to S$1.29 billion if 100% sold).

Singapore Retail

Low base effect to wear off – May’s retail sales were S$3.3 billion, up 80% y-o-y to mainly due to the low base effect from last year’s circuit breaker lockdown. Shops remained open after the Phase 2 heightened Alert was introduced on 16th May, and most sectors recorded y-o-y increases except for supermarkets & hypermarkets (-12.1%) and mini-marts & convenience stores (-9.2%). Online constituted 38.8% of F&B sales during the heightened alert. For the second half of 2021, sales growth may moderate to 2.5% y-o-y as the low base effect disappears.

Singapore Residential

Immediate new cooling measures unlikely – Private home prices rose 0.9% q-o-q in 2Q, compared with 3.3% in the first quarter. Two recent Government Land Sales tenders registered 15 bids (Ang Mo Kio Ave 1) and seven bids (Tengah Garden Walk) from keen developers. There was a surge of Good Class Bungalow transactions, including Nassim Road (S$128.8 million), Bin Tong Park (S$40 million) and Olive Road (S$36 million); and sizable units at new luxurious condominiums like Park Nova (S$5,838 per sq ft), Les Maisons (S$5,930 per sq ft) and Eden (S$4,827 per sq ft) have been in demand from both local and overseas (often Chinese) buyers.

The Monetary Authority of Singapore commented that the residential market is not overheated, but added that they, together with other government agencies, will be vigilant to the risk of a sustained increase in prices relative to income trends.


Shanghai Office

Tech companies as the leasing driver – The vacancy rate dropped from 21% to 14.6% in Q2, with TMT companies accounting for 25% of the new rental activity, followed by finance and professional services. Huawei took up 8,000 sqm in Raffles City The Bund in Hongkou District, joining other tech and finance tenants such as JD Digits, China Renaissance, Integrity Funds, and Ping An. BNP Paribas and Dentons moved their offices into Shanghai World Financial Center and Shanghai Tower, leasing 9,000 sqm and 10,000 sqm respectively.

ByteDance closed a deal to acquire a combined 237,000 sqm of office and retail space at Tishman Speyer’s The Springs mixed-use megaproject in Yangpu District. The acquisition price is said to be over RMB 40,000 per sqm. Before this, Yangpu district had successfully attracted two other domestic tech giants, Meituan and Bilibili, to acquire RMB 8 billion and 6.5 billion worth of land parcels.

Shanghai Retail

Booming night-time economy – Major cities including Shanghai have implemented policies to promote their night-time economies, which have been growing at a rate over 12% since 2016 and are seen as one driver of the post-Covid economy. According to a survey conducted by iiMedia Research, the most attractive night-time destinations are cinema/theatres, karaoke/party rooms, gyms, and 24-hour bookstores.

CapitaLand’s third Raffles City in Shanghai made its debut in the North Bund this month, with 92% occupancy. The mixed-use development has a GFA of 420,000 sqm, comprising two 50-storey premium Grade A office towers linked at the base by a six-storey shopping mall. Welcoming over 300,000 customers on its first day, the mall seeks to cater to the young generation’s cultural needs with more local start-up brands than international brands, live music shows and a nostalgia-themed space that echoes with young people’s childhood memories. As the site is surrounded by high-density residential neighbourhoods, tenants include kids’ education providers and a children’s park.

Insurance companies have been active in the investment market recently. PingAn Life Insurance spent RMB 33 billion to acquire CapitaLand’s portfolio of six Raffles shopping malls in Beijing, Shanghai and three other second-tier cities. Shanghai Raffles City Plaza in People’s Square was traded at RMB 13.5 billion (RMB 97,000 per sqm), marking the highest unit price in mixed-use transactions in Shanghai, and Changning Raffles City Plaza at RMB 15.5 billion (RMB 56,700 per sqm).

Shanghai Residential

Supply surge – June started with a rise in new housing market supply that brought down the average citywide unit price by 30% m-o-m to RMB 49,822 per sqm. The supply surge was due to the government’s centralized release of pre-sale permits, and the bulk of the new supply was located beyond the outer ring, in Baoshan, Qingpu, and Jiading etc.

In the land market, the first round of centralized auctions was completed in June. Over 40 developers and 31 land parcels were involved, promising to provide 31,000 newly developed units in 2022, again with most of the supply on the outskirts. One notable lot was a 147,870 sqm land parcel near the middle ring road in Putuo District, bought by a JV between local developer Excellence Group and JD, the online commerce company. The land, zoned for residential and commercial use, was traded at RMB 9.9 billion (RMB 30,700 per sqm on the buildable GFA of 322,864 sqm).

 

The information in this market update is current as at July 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. Schroders capital is not liable for any errors or omissions in the information or for any loss or damaged suffered.


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