Briefi ng Sales & investment November 2015

Transcription

1 Savills World Research Hong Kong Briefi ng Sales & investment November 2 SUMMARY En-bloc transactions are dominating the headlines while strata title commercial deals have declined in /2. Image: Central Two record breaking en-bloc office deals were completed in quick succession, reflecting strong interest in this particular market segment The recent stock market turbulence has not deterred potential buyers with several luxury primary launches recording better than expected results Office transaction volumes have fallen by 3% in Suburban retail malls are again attracting attention with another batch of centres sold by the Link REIT Industrial investment activity slowed as sentiment plummeted and available stock became limited The property market is nearing an inflexion point with values across most sectors likely to soften, or continue to soften, in 216. "There were a number of en-bloc offi ce transactions completed over the quarter refl ecting buyers interest in this segment. While retail sales continue to suffer, suburban shopping centres are in demand refl ecting strong local spending power." Simon Smith, Savills Research savills.com.hk/research 1

2 November 2 Market commentary Capital values across most sectors grew more moderately (and in the case of prime street shops, declined more sharply) in /2 because of the turbulent stock market, weakened investment sentiment and fear of an eventual rate hike. Nevertheless, interests in en-bloc offices heated up with two record breaking deals transacted in November in quick succession. Chinese Estates sold MassMutual Tower in Wanchai to Evergrande for HK$.5 billion or HK$36,29 per sq ft, breaking the lump sum record for en-bloc deals in Hong Kong. The payment terms, which stipulated a 4% down payment and a 6-year installment payment of the remaining proceeds, may have TABLE 1 Major investment transactions, Jul Nov 2 partly contributed to the higher-thanexpected price. The West Tower and West Retail Villa of One HarbourGate in Hung Hom was sold to mainland SOE China Life for HK$5.85 billion (HK$,885 per sq ft) making this the most expensive en-bloc office deal in Kowloon to date. Both premises were bought by Mainland companies and both offer unobstructed sea views and large and visible signage, typical of the types of trophy asset which appeal to mainland entities. Earlier in the quarter, another record deal was completed in the hotel sector, with Intercontinental Hotel Group selling Intercontinental Hotel in Tsim Sha Tsui to a GAW Capital-led consortium for HK$7.27 billion, with a long-term management contract in place, reflecting investors long-term Property Location Price Buyer Usage MassMutual Tower Wanchai HK$,5 mil/us$1,6 mil Evergrande Offi ce West Tower and West Villa, One HarbourGate Source: EPRC, Savills Research & Consultancy Hung Hom HK$5,85 mil/us$75 mil China Life Offi ce Intercontinental Hotel Tsim Sha Tsui HK$7,27 mil/us$938.1 mil GAW Capital Hotel 22 Barker Road The Peak HK$1,5 mil/us$193.5 mil TBC Residential Wincome Centre Central HK$1,3 mil/us$167.7 mil Emperor Offi ce GRAPH 1 Luxury transaction volumes by district on Hong Kong Island, /23 /2 No. of transactions Happy Valley / Jardine's Lookout Mid-Levels The Peak Pokfulam Southside Source: EPRC, Savills Research & Consultancy optimism about the Hong Kong hotel sector. Luxury residential market Hong Kong Island The super luxury segment has been quiet since the sale of 75 Peak Road for HK$5.1 billion at the beginning of this year, but this has been due more to an extreme scarcity of available stock. The sale of the house at 22 Barker Road for HK$1.5 billion (HK$1, per sq ft saleable) in broke the average price record on the Peak (and indeed Hong Kong), and again proved that a niche product in a prestigious location will always find a willing buyer. The recent financial market turbulence, which saw sharp corrections in both the Hong Kong and China stock markets, dampened investment sentiment across most property sectors in most parts of the territory. Nevertheless, the weak sentiment has not deterred all luxury developers or potential buyers and a few luxury primary sales launches have recorded satisfactory results. Following the sale of a duplex unit as the most expensive apartment in Asia in, OPUS saw another duplex sold for HK$459.6 million (HK$95,372 per sq ft saleable) in, together with three other simplexes for an average price of around HK$75, per sq ft saleable. The iconic building has seen eight of its units sold one year from launch. With a few of other launches recording satisfactory results, luxury transaction volumes on Hong Kong Island rebounded to 5 in /2, a 27% YoY increase and the highest since the introduction of DSD in /2. The high average prices achieved in primary launches in Mid-Levels induced the highest growth of 1.8% among all sub-districts, though price growth was much more moderate than in and given unattractive yield levels (hovering around 2.5% due to a slight decline in rents) and an increasingly uncertain economic outlook. savills.com.hk/research 2

3 November 2 Kowloon and the New Territories The Kowloon and New Territories luxury market also saw strong primary sales, with the launch of ULTIMA by Sun Hung Kai Properties grabbing headlines. The luxury project in Ho Man Tin recorded 84 transactions in for an average price of HK$3,5 per sq ft saleable, with around 3% of buyers from the Mainland. Inducements included tax rebates, a prestige location and the Sun Hung Kai brand. In the New Territories, the sales of Mayfair by the Sea in Pak Shek Kok saw another 43 units sold over the quarter for an average price of HK$19, per sq ft saleable. Transaction volumes in the five luxury districts we monitor in Kowloon/ New Territories jumped to 28 in as a result, a 9% YoY increase and again, a record high since the introduction of DSD back in /2. Nevertheless, despite the positive results achieved in the primary market, luxury market sentiment across the harbour was not as robust and luxury residential prices remained fairly stable over the quarter, as caution prevailed. Office market Transaction volumes plummeted by 3% YoY in /2 with record prices in core areas deterring potential investors, and no particular new launches of note in decentralized areas. Hong Kong Island The stock market turbulence which led to a low utilization rate of the Hong Kong-Shanghai Stock Connect has somehow halted expansion plans of many Mainland firms in Hong Kong (many to Central and Sheung Wan), and that has translated into slower rental growth in core office areas in /2. The sale of 34/F of United Centre for HK$439 million and the sale of 25/F of 181 Queen s Road Central for HK$339.9 million were the two most significant strata title office transactions on Hong Kong Island, given both had average prices of over HK$2, per sq ft. The lack of available stock has also contributed to the low transaction volume, as there was reportedly no GRAPH 2 Kowloon and New Territories luxury residential price indices, /23 /2 /23 = Kowloon Station Ho Man Tin Kowloon Tong Sha Tin/Tai Po Sai Kung/Clear Water Bay available stock in popular stratified offices such as 9 Queens Road Central towards the end of the quarter. Kowloon Across the harbour, transactions also dwindled as both end users and investors were kept on the sidelines by escalating prices and a lack of available stock: the only significant deal done in Tsim Sha Tsui was the sale of units 1-8 of Lippo Sun Plaza for HK$262.7 million (HK$16, per sq ft). The lack of new primary launches in 7 GRAPH 3 Grade A office price index by district, /23 /2 /23 = Central Wanchai/Causeway Bay Island East Tsim Sha Tsui Kowloon East Kowloon West decentralized areas further limited investor choice, and while the two new projects in Kwun Tong, namely T G Place on Shing Yip Street and Montery Plaza on Chong Yip Street recorded eight transactions in total in /2, the decentralized market was muted elsewhere. Retail market saw the first meaningful decline in prime street shop prices (~1%) after prime street shop rents declined by more than 3% over the past months. Two street shops at 4 Sun Wui Road in Causeway Bay, savills.com.hk/research 3

4 November 2 and 7-72 Nga Tsin Wai Road in Kowloon City, which were owned by the same investor, were sold for around HK$ million, with an average price of around HK$34, per sq ft and a passing yield of around 2.8%, considered a bargain in today s market. The decline in luxury retail sales has put pressure on street shops in core areas with more vacancies seen in secondary streets within prime districts. On the other hand, the suburban retail market was has continued to attract interest particularly given strong local spending. Another batch of five suburban shopping centres of the Link REIT were tendered for sale in and with over 2 interested parties submitting bids, all five centres were sold. GRAPH 4 Major industrial transaction volumes and values (>HK$3 million), /27 /2 No. of transactions Volume (LHS) Consideration (RHS) 7, 6, 5, 4, 3, 2, 1, HK$ million Industrial market Sixteen major transactions of over HK$3 million were concluded in /2. While volume rebounded by % quarter-on-quarter (QoQ) the total consideration dropped sharply by 52% QoQ to reach HK$1.7 billion, a new low since /2. As expected, the investment market turned quiet in the summer months with only three transactions of over HK$1 million recorded. The only enbloc transaction was the sale of Kader Industrial Building (22, sq ft) in Fanling for HK$7 million (HK$3,54 per sq ft). Purchasers faced an uncertain investment environment with both the stock market and the China economy tumbling, this, coupled with a lack of choice, meant that many were kept on the sidelines. OUTLOOK The prospects for the market Luxury residential With investment prospects dwindling, an interest rate rise imminent and supply likely to increase modestly, luxury residential prices may decline by 1% next year, and primary sales, especially in Mid-Levels, may face stiffer competition with more project launches. The super luxury segment, meanwhile, should see continuing interest for a very limited amount of available stock, and we may see more records broken if niche products are made available to the market next year. The house market may face tougher challenges as on Hong Kong Island alone, there are around 7 completed but unsold new houses currently on the market. Taking into account the houses to be completed and made available for sale on Hong Kong Island over the next three years, many of which may be selling for between HK$3 and HK$8 million, we may see some pressure on house prices. As a reference, over the last months 42 houses have been sold on Hong Kong island in the primary and secondary markets combined. Grade A office The revival in the office sector seems to have been short-lived with rental growth across most sub-districts moderating, and the generally cautious sentiment filtering through to the sales market, in particular the stratified segment. The enbloc office market was very active though, and while mega deals such as MassMutual Tower and One HarbourGate are rare, en-bloc offices priced between HK$5 million and HK$1.5 billion are still available. We expect strata office prices to stabilize next year, with more upside likely in the en-bloc market. Prime retail In the sales market record low volumes persist and prices have fallen by.4% YTD in 2 compared with 2. With the recent stock market turbulence and concerns over broader economic growth, combined with weaker rents, savills.com.hk/research 4

5 November 2 OUTLOOK The prospects for the market we maintain that price rises are unlikely. We would expect prime street shops prices to fall by % to 2% over the full year. Industrial The quiet investment sentiment should continue into the last quarter of the year given the lack of available stock, with the space which is actually available likely to be highly sought after. With warehouse leasing prospects moderating, we would expect end users and investors looking for redevelopment potential to be the most active in the market in the short-term. The imminent ending of the nil waiver fee policy for industrial revitalization is likely to prompt eligible landlords to speed-up their application processes, but investors are unlikely to rush their decisions as the price of buying an industrial building approved for revitalization before and after March 216 may not be substantial. Please contact us for further information Savills Investment Savills Research Raymond Lee CEO Greater China rlee@savills.com.hk Peter Yuen Deputy Managing Director Head of Investment & Sales pyuen@savills.com.hk Simon Smith Senior Director Asia Pacific ssmith@savills.com.hk Jack Tong Director jtong@savills.com.hk Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 6 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. savills.com.hk/research 5