Knowledge Hub

Market softening continues

The rapid vaccine rollout, increasing corporate profits, and limited supply should give the market some much needed breathing room.

• The lukewarm market sentiment continued to weigh on office rents and vacancy in the central five wards (C5W) this quarter.
• Average Grade A office market rents in the C5W fell 2.2% quarter-on-quarter (QoQ) and 8.2% year-on-year (YoY), and now stand at JPY34,370 per tsubo per month.
• The average Grade A office vacancy rate in the C5W increased by 0.8 percentage points (ppts) QoQ and 1.8ppts YoY to 2.5% in Q3/2021.
• Average large-scale Grade B office rents declined to JPY26,106 per tsubo per month – a contraction of 2.5% QoQ and 8.4% YoY.
• The average vacancy rate in the Grade B market loosened by 0.5ppts QoQ and 2.3ppts YoY to 3.3%.
• With the rapid vaccination rollout, strong corporate profit growth and limited supply until 2023, market sentiment should begin to stabilise or even improve.
• The poor performance of less accessible and older offices remains a drag on the office market overall. Meanwhile, tenant preferences for easily accessible and new offices persist.

This article was originally published in https://www.savills.com.hk/

Downtrend in rents continues

Although rents have weakened, occupancy rates see a slow recovery.

• Rents in the Tokyo 23 wards (23W) fell by 0.9% quarter-on-quarter (QoQ) and 3.6% year-on-year (YoY) to JPY3,929 per sq m this quarter.
• Average mid-market rents in the central five wards (C5W) saw a small decline this quarter and are now at JPY4,661 per sq m – a fall of 0.2% QoQ and 3.6% YoY.
• The C5W premium has inched up to 17.9% – up 0.3 percentage points (ppts) from Q2/2021.
• In the C5W, average rents for units in the 15-30 sq m size band have again decreased this quarter. However, the 30-45 sq m size band saw a small increase in rents.
• The average occupancy rate in the 23W rose by 0.2ppts to 95.6%. The C5W saw a similar increment, increasing 0.2ppts to 94.5%.
• The C5W has seen a population decline, driven by younger families who appear to prefer larger units.

This article was originally published in https://www.savills.com.hk/

Recovery remains elusive

In a broadly stable market, some signs of leasing activity were detected in Central, while F&B again proved to be the go-to sector for landlords.

• The market has been relatively stable over the third quarter with retail sentiment weak, while F&B has remained a rare bright spot.
• Dining-out or ‘eat-cations’ have become the ‘new holiday’ for locals, supporting the F&B sector across all price points.
• Leasing activity in core locations remains largely subdued except Central which continues to benefit from its reliance on high-end local demand.
• Rents in both the prime street shop and major shopping centre segments have stabilised and registered a QoQ growth rate of 0.4% and 1.2% respectively.

This article was originally published in https://www.savills.com.hk/

Rental declines continue across the board

Rental declines were milder in Kowloon with vacancy gradually absorbed after the aggressive rental adjustments of late last year. 

• Grade A rents fell by 1.5% in Q3/2021 compared with a 2.6% decline in Q2/2021.
• The Central office market has been buffeted by the same headwinds as other markets, but despite this we have seen some selective expansion demand and new leases among Mainland financial institutions as well as new industry tenants.
• In the uncertain environment, serviced offices are popular, and we note more take-up from large operators in core business districts.
• Rental declines were milder in Kowloon with vacancy gradually absorbed, particularly in Tsim Sha Tsui and Kowloon East.
• Vacancy rates continued to climb to 9.3% in Q3 with office buildings in some areas, such as North Point and Kowloon West, suffering more than others.
• Upcoming supply in prime areas is seeing some early pre-commitment.
• As Central’s rental premium over the rest of the market narrows, decentralised rents may in turn come under pressure. Looking ahead, during a period of uncertain prospects and elevated supply, a lot will depend on demand from PRC firms over the next 12 to 24 months.

This article was originally published in https://www.savills.com.hk/

Investors remain engaged

Logistics leasing activity levels revived in Q3 with operators opting to renewal in order to minimize business disruption, while those with expansion needs were looking for relocation options.

• The revival of the local trading and retail sectors has meant that many logistics operators were keen to renew leases to avoid business disruption, while those with expansion demand chose to relocate. 
• Overall and modern warehouse rents continued to rebound by 2.1% and 2.5% in Q3/2021 respectively, while both overall and modern warehouse vacancy rates fell to 3.2% and 2.6% over the same quarter, after a small spike last quarter.
• Investment sentiment continued to revive in Q3 with 17 major deals of over HK$100 million concluded worth a total of over HK$7.3 billion.  While investment funds were still keen on the high yield logistics sector, we note more participation from logistics operators (for eventual owner-occupation) and developers (for redevelopment).
• With local and global supply chains both expected to continue to rebound, short-term logistics demand seems to be sustainable. Nevertheless, a total of 7 million sq ft of new warehouse space is scheduled to come on stream over the next two years, so far with little pre-commitment, and this will test market resolve when it arrives in 2022 and 2023. 
• The robust investment sentiment for warehouse assets so far this year has already pushed prices up and yields down.  With Revitalization Policy 2.0 extended for another three years, we expect industrial investment to refocus more on run-down industrial premises with redevelopment potential.

This article was originally published in https://www.savills.com.hk/

• Based on the Ministry of Trade and Industry’s (MTI) Q2 2021 economic survey, Singapore’s economy grew 14.7% year-on-year (y-o-y) in the second quarter of 2021. On a quarter-onquarter (q-o-q) seasonally-adjusted basis, Singapore’s economy actually contracted by 1.8% in Q2 2021, compared to the 3.3% q-o-q expansion recorded in the first quarter of 2021.
• Manufacturing continued to drive the recovery in Singapore, as semiconductor manufacturers and sub-contractors supporting electronics firms reaped the benefits of the global chip shortage. The precision engineering and electronics clusters recorded 24.3% and 18.3% y-o-y growth respectively. These numbers were overshadowed by the impressive growths seen in the transport engineering and chemicals clusters, which recorded 29.6% and 20.1% y-o-y growth respectively, although this was largely the result of the low base effects in 2020.

This article was originally published in https://www.knightfrank.com/

• Prices of non-landed private residential properties (excluding Executive Condominiums (ECs)) grew by a marginal 0.5% quarter-on-quarter (q-o-q) in Q3 2021** to 159.6, with transactions in the Rest of Central Region (RCR) being the main contributor to the rise. The quarterly increase was moderated when compared to Q1 and Q2 2021, where the index grew by 2.5% and 1.1% respectively.
• There were 7,103 non-landed private homes (excluding ECs) transactions in Q3 2021*, a slight 1.4% decrease q-o-q. While both Q2 and Q3 2021 included periods where Singapore was in or reverted to Phase 2 (Heightened Alert), quarterly sales volume largely held up above a respectable 7,000 units. Especially when compared to an average of about 4,162 units during the pre-pandemic year of 2019*.

This article was originally published in https://www.knightfrank.com/

• Keeping with the general upbeat pace of deals in the real estate market, the third quarter recorded some S$7.5 billion of investment deals, with 49.7% contributed by transactions in the public sector. This transaction volume represents a 38.7% quarter-on-quarter (q-o-q) increase from the S$5.4 billion in the previous quarter, and a 58.1% year-on-year (y-o-y) growth from the S$4.8 billion in the same period last year.
• The bulk of investment volume in Q3 was driven by the sale of four Government Land Sales (GLS) sites, with the award of the Marina View reserve site at S$1.5 billion being the top land sale, followed by the Jalan Anak Bukit parcel at S$1.0 billion. With frenzied bidding at certain recent GLS tenders, other land-hungry developers may shift their focus towards the greater diversity offered by smallersized plots in a variety of locations, such as sites with more palatable quantums where owners are attempting a collective sale. With the seal of the Flynn Park collective sale deal at S$371 million or S$1,355 psf ppr, this could cause a ripple effect in the en bloc market given that many owners are keen to collectively sell their ageing units. As such, projects in the range of S$600 million and below with about 600 units might just find willing buyers.

This article was originally published in https://www.knightfrank.com/

CBRE Research recently analysed the land and buildings held on balance sheets across 40 ASX200/NZX50 listed companies. What we discovered was that well over $AU24 billion of capital could be unlocked and reinvested into higher returning opportunities in the Materials, Healthcare, Telecommunications, Transport and Industrial sectors in Australia and New Zealand.

There is strong demand from listed and unlisted property funds for long-term leased properties. The ability to capitalise on improving market values, dispose of under-utilised assets and acquire capital to fund other business strategies are just some of the reasons why listed corporates are targeting owner-occupier sales. In the Pacific region alone, there has been a well-worn path of owner-occupier real with c.AU$11 billion already realised over the past five years.

With significant yield compression evident across all commercial asset types since 2015, particularly in the industrial property sector, the opportunity could be even higher than our initial AU$24 billion estimate as corporates in Australia and New Zealand revisit their property occupancy strategies to unlock value.

This article was originally published in https://www.cbre.com/

Australia’s residential pricing has reached record highs, with continued strong growth across almost all markets. The national median house price had risen 18.4% over the year to June with the national median unit price up 8.6%. There are signs, however, that price and lending growth is attracting the attention of regulators, with some forms of macro-prudential intervention looming. Initial curbs are likely to target highly leverage borrowers. APRA has already increased the minimum interest rate buffer ADI’s use in assessing loan serviceability from 2.5ppts to 3ppts above the actual loan rate, while Australia’s major banks have begun to take a more cautionary approach to some of their lending criteria.

This article was originally published in https://www.cbre.com/