22 May 2017
Greater China Quarterly Report Q1 2017
Curbing Measures Expected To Reduce Residential Transaction Volume But Not Prices
Abundant supply is set to drag down Grade-A office rents in Beijing, while in Shanghai and Guangzhou, strong demand and diminishing supply respectively will lead to mild rental rises in the coming months. Meanwhile, to rein in the skyrocketing residential prices, many cities in the Greater China region have introduced various cooling measures, but they are expected only to drag down transaction volume and slow down the pace of home price growth. In the retail market, facing fierce competition from e-commerce retailers, shopping centres in Greater China will continue to undergo restructuring and renovation to enhance their attractiveness.
In the first quarter of (Q1) 2017, Beijing's Grade-A office rents decreased slightly quarter on quarter, due to an increase in supply. Shanghai’s office rents remained flat, with the impact of increased vacant office space in core areas offset by satisfactory leasing performance for recently completed offices. In Guangzhou, rents increased significantly as a result of no new supply in the market in Q1 2017. The Hong Kong office market continued to polarise, with rents on Hong Kong Island rising further due to limited supply, while those in decentralised areas remained suppressed amid abundant availability. In Taipei, the Grade-A office leasing market saw a stable absorption rate as the local economy was warming up, giving rise to slightly higher rents. In the next 12 months, with abundant new supply, Beijing’s vacancy rate is set to increase, while rents will continue to decrease. In Shanghai, new supply of no less than 2 million sqm will come onto the market in 2017, but the space is set to be taken up quickly, leading to a 3-5% rise in Grade-A office rents in core business districts. In Guangzhou, the supply wave in Pearl River New City had almost reached its end, so rents are expected to rise further. In the core areas of Hong Kong and Taipei, rents are also expected to rise further this year.
Because of the Chinese New Year holiday, luxury residential sales in Beijing slowed down in January, but picked up quickly in February and March. Both luxury home prices and sales volume moved upwards in Q1 2017. The Shanghai luxury residential market witnessed a fall in sales with weaker demand, but prices rose given the limited availability of urban residential land and high land acquisition costs, which made developers reluctant to cut prices. In Guangzhou, an absence of new luxury supply dragged down transaction volume, but prices still gained 4%. In Hong Kong, despite various cooling measures, luxury residential sales and prices continued to rise due to strong demand from both end-users and investors. In Taipei, an over 30% cut in luxury home holding tax next year led to a rebound in market sentiment and a slowdown in the drop in prices. As strict restrictions are expected to continue on the Mainland, developers are set to adjust their project launch and sales strategies accordingly. Decreased new supply is expected to lead to lower transaction volumes, but with strong market demand, luxury home prices in major Mainland cities should remain firm or rise slightly. In Hong Kong, while abundant upcoming supply and interest-rate rises will help suppress price growth, high land prices and strong demand should lend support to home prices. In Taipei, capital is expected to repatriate to Taiwan, seeking safe havens such as real estate, pushing up sales volumes. However, with high destocking pressure on developers, the luxury residential market is expected to continue to see a trend of falling prices.
Due to the New Year and Chinese New Year holidays, the retail market in major Mainland cities performed well in Q1 2017, with slight increases in retail rents. On the supply side, the market saw no new shopping centres launched in prime retail areas during the traditional low season for mall openings. On the demand side, retailers remained cautious about expansion and were reluctant to open new shops. In Hong Kong, retail sales value and visitor arrival numbers saw further improvement in Q1. In Taipei, falling Mainland visitor arrivals, the introduction of new labour laws and the rising popularity of e-commerce dragged down store demand. Some landlords offered lower rents in prime retail areas to retain tenants. In the coming year, long-established shopping centres in core business districts will undergo revamps to fight strong competition from e-commerce and market saturation. E-commerce has already gone through a period of rapid development, with growth pace easing. Hence, we believe retail rents will rise or remain steady on the Mainland. In Hong Kong, the retail market is expected to bottom during the first half of 2017 as it establishes a new normal, while in Taipei, rents are expected to remain stable in the coming 12 months.
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