Prominent real estate advisor Savills pointed out in its APAC Prime Benchmark that Hong Kong remains the most expensive market in almost every segment examined, including office, prime retail malls, luxury (serviced) apartments and prime villas / townhouses.
Unsurprisingly, the hotel (-34.1%) and retail (-19.2%) sectors recorded the largest declines in 1H 2020. Tokyo room rates surpassed other hotel markets in the region averaging USD$648 per room per night.
Prime office rental markets in most cities have entered a down-cycle, with rental movements over the second quarter ranging from -12.0% (Hong Kong) to +2.6% (Seoul). Pressure on cashflows has resulted in either company downsizing or closures. International business-friendly cities such as Singapore (-1.9%), Beijing (-1.1%) and Shanghai (-4.8%) all suffered rental declines. Hong Kong remained the most expensive prime office market in the region, with average rates of US$267 per sq m per month net.
Prime retail markets were severely disrupted by the pandemic with rental movements from -19.2% (Hong Kong) to +0.2% (Hanoi). Tourist-focused sectors such as luxury fashion and jewellery took the biggest hit. The structural shift towards e-commerce also impacted offline businesses. Given the city lockdowns, Sydney, Melbourne and Singapore retail rents have fallen by 12.4%, 11.5% and 6.5% respectively over the last six months. Many retailers are continuing to negotiate for rental relief. The only city posting positive rental growth was Hanoi (+0.2%), thanks in part to a rapid resumption of domestic activity. Ho Chi Minh City (-1.6%) may recover in the second half, depending on the successful containment a second wave.
The regional luxury apartment rental markets also posted declines. Travel restrictions have hindered business activity and labour mobility across the region. In China, Shenzhen (-7.3%) registered the largest rental decline, followed by Beijing (-1.5%), Shanghai (-2.2%) and Guangzhou (-1.8%). Pay cuts and layoffs have also affected rental demand from individuals. In Kuala Lumpur and Taipei, rents dropped by 6.0% and 3.2% respectively.
The hotel sector has been hit hardest, with rental declines from -41.8% (Manila) to -6.0% (Shanghai). Cities reliant on foreign tourists saw dramatic declines in rates, including Hong Kong (-34.1%), Hanoi (-33.8%), Sydney (-26.6%) and Tokyo (-16.5%). While China continues its path to recovery, markets such as Australia, Hong Kong and Tokyo are taking longer to rebound due to the resurgence of COVID in July.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “The COVID-19 outbreak has negatively affected occupier markets across the region, but despite this, several cities in Japan and Southeast Asia are still in a late upswing in the office, retail and luxury residential sectors. Looking ahead, we expect less corporate travel as companies remain under financial pressure and travel restrictions remain in place. Short-haul travel is expected to recover sooner than the long-haul sector. Domestic tourists will continue to support the hotel markets of larger, more populous countries such as China.”
Note:
- All % changes are in local currency terms.
- It is worth noting that this covers the 'prime-prime' segment of most major property sectors in key cities around the region and should not be confused with the market overall, particularly when comparing market cycles.