Knight Frank Asia Pacific Insights: April 2021

Australasia

Australia’s Warehouse building boom will continue in 2021

The volume of new industrial supply in Australia’s east coast cities completed in 2020 and planned for 2021 is at unprecedented levels. Spurred on by strong tenant demand for prime warehousing facilities, the construction of new industrial buildings across the states of NSW, QLD and VIC is expected to increase to 2.2mn sqm, up from 2mn last year. Domestic and offshore institutional capital are stepping up their exposure through development and there has been a significant increase in new JV capital partnerships recently.

Reflecting the increasing popularity of the sector, investment volumes into the sector rose to A$8.8 billion in 2020, up from $7.7 billion in 2019.  Recent major news includes Dexus’ and its partners acquisition of prime east coast assets worth more than A$150mn, along with Aware Super and Frasers’ JV to developer a A$1bn industrial complex in Sydney. Interest from investor in the industrial sector is expected to remain strong given the robust outlook for Australia’s online retail sector which has seen its penetration rate rise to c.10% in 2020, up from c.6.0% in 2019.

Office workers slow to return in major AU CBDs

Despite various states in Australia having lifted social distancing measures and increasing office capacities, workers have been slow to return to the office, despite some urging from corporates. The Property Council of Australia’s latest office occupancy survey found little growth in the number of workers returning in February with Sydney at 48% (vs. Jan’s 45%), Melbourne at 24% (vs. 31%), Brisbane at 64% (vs. 63%) and Perth at 65% (vs. 66%). While there were brief lockdowns in Feb that impacted Melbourne and Perth, on a national level, many corporates retain a 50-75% occupancy limit which, especially for Sydney at 48% continues to remain on the low end. With workers reluctant to return and occupiers sitting on longer unutilized space, office market conditions are expected to remain in tenants’ favour this year which will put further downside pressure on effective rents.

New Zealand’s introduces more measure to cool housing market

Following February’s measures which raised deposit rates, the NZ government introduced more measures in March targeted at property speculators, to control its rapidly heating residential market. The measures aim to make speculative investments less lucrative by removing existing tax incentives. Other measures include doubling the capital gains tax relief period to 10Yrs and removing the ability to claim mortgage interest as a tax deductible. Property investors now form the biggest share of buyers for New Zealand homes, forming the highest amount of purchases on record. In 2020, there were 15,000 investors who bought homes having already owned 5 or more. We believe that these moves will continue to take the wind out of the sail for the residential market and the rate of price growth should normalize over the coming months.   

South East Asia

Singapore office market receives boost in confidence as workers return to workplace

Three months into Phase 3 of reopening from the “circuit breaker”, Singapore announced in March 2021 that up to 75% of staff can return to workplaces from April 5 onwards. Confidence in the market’s office sector grew, as office landlords’ shares surged after the announcement. While the work-from-home experiment remains relevant, this change brings optimism that the office will reinstate its importance in the landscape of the overall economy. Landlords’ cashflows should also improve, as F&B and retail podiums will not need as extensive of rent rebates to stay afloat going forward. Nevertheless, companies will be figuring out their workplace strategies over the next few months, and we may see a hybrid working model being adopted when tenancies are up for renewal.

South Asia

Shifting residential preferences boosts Mumbai property market

To help the sector revive from the pandemic-induced lockdown, the State Government has cut stamp duty rates for the period of 7 months effective from September 1, 2020 till March 31, 2021. Sales jumped significantly after this change to stamp duty rates and more than tripled from 10,901 units in Q3 2020 to 36,811 units in Q4 2020 and further rose to over 38,312 units in Q1 2021. We believe the Mumbai will continue its strong showing going forward, as a host of other factors such as historic low home loan rates, low housing prices, pent up and new demand for bigger and better homes and policy changes will keep driving the property market’s engine.

East Asia

NPS commits US$500 million to Blackstone’s life science property fund

South Korea's National Pension Service (NPS) has committed US$500mn to Blackstone’s new life science property fund, which has a target fund size of US$12bn. So far, the fund has raised US$8.4bn and has agreed on a 2.3mn sqft research lab and office for US$3.4bn last year. Life science facilities are set for a boom in 2021 and beyond, as the bio-industry growth was accelerated in 2020 by COVID-19. Workspace usage in this sector has also been relatively unaffected by work from home trends, which shields the portfolio's occupancy rates from pandemic-related slumps. Furthermore, the longer growth trends in Asia remain positive with large developed markets such as South Korea and Japan grappling with rapidly aging societies.

HK home prices rise in Feb; fastest pace in 9 months

Housing prices in HK rose 0.9% MoM in Feb, marking its fastest growth since May 2020, led by improved market sentiment as vaccines are deployed in the city and low interest rates. Market watchers have also attributed the strong residential market to elements of pent-up demand built up from late last year and the healthy stock market, which we have seen in the past to have strong correlations with the residential market. Going forward, our expectations are for developers to continue their pace of launching new projects, but the overall outlook remains cautiously optimistic, as downside risks persist amid concerns of a further resurgence of Covid-19 infections and the lukewarm response in the mass vaccination campaign.  

New home prices in Mainland China accelerates in Feb

Mainland China’s new home prices in February accelerated to its fastest pace in five months on the back of improving sentiments, led by its major Tier-1 cities. Average new home prices for its 70 major cities rose 0.4% MoM, a pickup from the 0.3% rise seen in January, while Tier-1 cities recorded a 0.5% increase. On an annual basis, prices were up 4.3% YoY in Feb compared to 3.9% in Jan. The resilience of China’s property market has been a key driver behind the country’s post pandemic economic recovery in 2020. While there are concerns on housing bubbles forming, the government has taken active steps to curb it by prompting some regulatory loopholes tightening. The underlying fundamentals remain sound, however, which should support a healthy level of growth this year.