Asia Real Estate Market Update September 2021

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Hong Kong Office

Pick-up in leasing activity – In the largest leasing deal of the year Chinese investment bank CICC took two additional floors at One International Finance Centre for HK$6.9 million a month. Flexible workplace provider The Executive Centre leased 60,000 sq ft at 28 Stanley Street, following its lease on AIA Central in June; and property agency Centaline is moving from Central to 60,000 sq ft at Wharf T&T Centre in Tsimshatsui.

Sun Hung Kai Properties obtained Town Planning Board approval for two commercial buildings at Kowloon West Station, comprising a 24-story office tower and a 30-story retail mall. The developer acquired the site for HK$42.2 billion in a public land sale tender in 2019 and sold 30% of the project to Ping An Insurance in 2020.

Hong Kong Retail

Rents slashed in prime districts – Leasing transactions picked up in prime districts amid an easing of local anti-COVID restrictions and significant rent cuts across the board. Alpine equipment retailer Chamonix leased the second floor of Pakpolee Commercial Centre in Mongkok (6,028 sq ft) for a monthly rent of HK$300,000, 64% below the peak. Jewellery retailer TSL committed to a three-year lease on the ground and first floors of Park Lane Shopper’s Boulevard in Tsimshatsui (2,768 sq ft) for a monthly rent of HK$250,000, 84% below 2016 levels.

In the investment market, New World Development is reportedly selling shops at Mei Foo Sun Chuen in Lai Chi Kok for HK$550 million (HK$6,455 per sq ft), at an initial yield of 3%. Henderson Land offloaded a basket of street-front shops at H.Bonaire in Ap Lei Chau for HK$225 million (HK$43,037 per sq ft / 1.8% initial).

Hong Kong Residential

New home sales snapped up – New project launches were well-received, with La Marina atop Wong Chuk Hang Station, jointly developed by Sino Group, Kerry Properties and MTRC, and New World’s Wetland Seasons Bay in Tin Shui Wai selling over 90% of the 376 units and 1,224 units on offer, respectively. Meanwhile, Henderson Land’s The Henley III in Kai Tak sold 67 of 100 units released on launch day.

Henderson Land won the tender for the Urban Renewal Authority’s Bailey Street/Wing Kwong Street redevelopment project in To Kwa Wan for HK$8.2 billion, outbidding five other contenders. The A.V of HK$11,414 per sq ft was 12% below market estimates.


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Singapore Office

Hybrid working – As restrictions are lifted and Singapore moves towards endemic living, many firms have implemented flexible work arrangements, drawing from the WFH experience. DBS, UOB and others either have already or will soon renovate their offices with modular designs suitable for collaborative activities.

Some firms are reducing footprint and moving out of current offices when their leases expire. Law firm Lee & Lee will move to a hybrid work model from 25 North Bridge where they have leased 30,000 sq ft, slightly smaller than the previous office in Singapore Land Tower. EFG Bank has relocated from 52,000 sq ft in EFG Bank Building to 38,558 sq ft at 79 Robinson Road. SMBC is moving out of 150,000 sq ft at Centennial Tower and will lease 68,600 sq ft at the newly completed CapitaSpring and 45,000 sq ft at Changi Business Park - outside the CBD but nearer to some employees’ homes.

Co-working operator JustCo is to open three more centres as occupancy rates across its existing 17 premises stabilise at over 80%.

Singapore Retail

New retailers opening – On average, 1,000 new retail businesses and F&B outlets opened each month between June 2020 and June 2021. This is more than pre-pandemic between 2017 to 2019. The Accounting and Corporate Regulatory Authority reported that openings exceeded closures, with 44,317 new entities formed while 33,230 ceased operations between January and August 2021.

Luxury boutique Pedder, which occupied 20,000 sq ft in Scotts Square, is the latest large shop to close. However, local leather goods store Bynd Artisan opened a new multi-concept store in Ion Orchard, in a unit formerly occupied by Haagen-Dazs.

Some large and well-known F&B companies are taking advantage. Famed egg sandwich chain, Eggslut, opened its first outlet in Scotts Square to snaking queues. Shake Shack opened its 7th store, at Gardens by the Bay and Chinese hotpot chain Haidilao will open two more stores at City Square Mall and Century Square. Zouk opened a new omakase restaurant in Clarke Quay near its club, and home grown fashion retailer Love, Bonito reportedly will hire some 200 part-time staff for its five stores.

Singapore Residential

Increased DC rates – With sales achieving new highs and developers submitting bullish bids for sites, development charge rates (paid by developers to the state to enhance use or increase intensity) have increased by 6.3% to 10.9% on average, the most since rises in September 2013 (landed) and March 2018 (non-landed).

In the six months to August there were 12 non-landed residential development site transactions, worth S$2.59 billion, compared with 11 worth S$1.04 billion in the prior six months. The higher rates are also due to the Good Glass Bungalow (GCB) market, which is heading towards a 10-year high. From January to August 2021, S$2.05 billion was spent on 68 GCB deals – an average of over S$30 million per property. This year also saw the highest-value GCB land rate of S$4,005 per sq ft, in the Nassim area. DC rates there have since spiked 18%.


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Shanghai Office

Collapsing demand from online education firms – Policies curbing private tutoring as part of the education system reforms have cut demand for office space from online firms. Tencent-backed Yuanfudao has downsized in several tier one and tier two cities, whilst PingAn-backed Tutor ABC surrendered 15,000 sqm of offices in Yangpu.

The Central Committee and State Council jointly issued guidelines to help Pudong New District make better use of national and international market resources to become a nexus of domestic and foreign activities. Key sectors include Integrated Circuits, Life Science, Artificial Intelligence and Civil Aviation. Zhangjiang, as the leading National Science City, is targeted for the next wave of growth.

In August, GSUN, a JV between Suzhou Industrial Park and GSUM (a Chinese REIT expert), bought Innov Tower for RMB 1.66 billion (RMB 41,000/sqm) from AEW Capital and Goldman Sachs, who had acquired it in 2017 for RMB 1.5 billion. The 40,445 sqm, 28-storey, grade A office building in Caohejing High-Tech Park was completed in 2009 and upgraded in 2019.

Shanghai Retail

More premium supply to come – Four new projects were launched in 2Q, bringing 320,000 sqm into the market in Jinqiao, Putuo, and Caohejing. Thanks to the consumption recovery and buoyant prime retail sector, 12 projects are to be launched in 2H, adding a further 1.3 million sqm. This will include premium shopping malls operated by renowned developers, including ShuiOn’s Hall of the Sun in Hong Kou and Swire’s Taikoo Li in Qian Tan.

In the leasing market, domestic and international NEV (New Energy Vehicle) brands are expanding their footprint. A number of malls in Zhangjiang and Wujiaochang have dedicated first-floor units to Ford and Volkswagen, along with domestic brands such as NIO, XPeng and Weltmeister. NEV brands’ rental affordability and distinctive consumer profile make them a welcome addition to many malls.

Shanghai Industrial

Limited logistics supply – Net logistics absorption totalled 133,343 sqm in 2Q, with submarkets including Jiading, Minhang and PVG area fully leased. One new logistics facility was completed in Jinshan, adding 200,000 sqm. Limited supply and strong leasing demand pushed citywide average rents up by 0.2% q-o-q.

Leasing activity is being driven by expansion of 3PLs (3rd party logistics providers) and courier companies. Major deals were signed by SF Express (100,000 sqm) and Deppon Express (20,000 sqm) in Jinshan district.

On the investment front, PGIM Real Estate spent USD 323 million in June to acquire warehouse projects from New Ease, a Shanghai-based industrial developer backed by Warburg Pincus. The deal included two facilities in Nanjing and Shanghai. Shenzhen International, a HKEX listed SOE, acquired a 52,494 sqm logistics park in Minhang from Gaw Capital in July, at a price of RMB 590 million (RMB 11,239/sqm).

Shanghai Residential

Booming leasing market amid strong purchase restrictions – Shanghai’s 14th five-year plan for housing development was released in August. The plan makes the development of rental housing its top issue and sets a goal to provide 420,000 rental units in the coming five years.

In 2Q, the citywide vacancy rate of serviced apartments fell to 12.2%. The average rent increased 1.8% to RMB 266.6/sqm/month, up 4.2% y-o-y. Four new premium multifamily projects were launched, bringing 1,183 units to the market. The largest one, Blackstone’s apartment in Putuo operated by Funlive, offers 645 units ranging from 51 to 138 sqm. It is Funlive’s 10th project in Shanghai and 21st nationwide.

 

The information in this market update is current as at September 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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