In this Weekly Snippet, our experts share their observations of the trends in the office and retail property investment markets. Erric Chow of Office Services sees demand from healthcare occupiers and Jason Fung of Valuation & Advisory Services expects to see more investment activity for neighbourhood malls and retail podiums in 2021, particularly from private investors and institutional funds.
Healthcare sector creates strong demand in Central
The financial services sector tends to drive occupier demand in Central. Recently, we have observed that the healthcare sector has emerged as a surprise tenant for prime location premises in Central. However, with limited Grade A office buildings in Central for healthcare occupiers, No. 9 Queen’s Road Central (9QRC) is one building that provides an opportunity this sector. With rental dropping by approximately 18% in Central in 2020, rent at 9QRC has reduced from over HK$80s, to mid-HK$60s per sq. ft. gross. The decline has attracted in-house expansion/relocation for healthcare occupiers, with the percentage of healthcare occupiers in the building sitting at approximately 23%. Sizeable healthcare groups may also lease en-bloc buildings in Central with options including 122 Queen’s Road Central, and Two Chinachem Central.
Given the healthcare sector’s well-established referral network with other medical practices that drives strong business, we expect demand for office space in Central by occupiers of the healthcare sector to remain high.
With a rental drop of over 15% in 2020, different healthcare groups have been looking into the market for suitable premises. Landlords who accept healthcare tenants are expected to have stable, or a slight increment, rental in H2 2021 – this could be compounded if cross-border travel between Hong Kong and China resumes.
Neighbourhood malls and retail podiums continue to be sought-after assets
Two new retail podium transactions were recorded this week. Firstly, private investors Chan Ping-che and Lam Chi-fung bought two neighbourhood malls in Kwai Chung from the Tang Shing-bor family at consideration of HK$1.3 billion. The On Yam Shopping Centre has a total area of 40,899 sq. ft. and 355 parking spots, while Shek Wai Kok Commercial Centre has a total area of 132,000 sq. ft. and 578 parking spaces.
Secondly, Wang On Properties partnered with a local investor to jointly acquire the retail podium of The Parkville, Tuen Mun at a consideration of HK$300 million. The property comprises 11 shops on the ground and first floors with a total area of 14,000 sq. ft.
The new shopping centre and podium buyers will refurbish and reposition the existing properties, aiming to enhance the leasing performance and property value.
Since March 2021, we have seen a rebound in the property market especially in retail, industrial and residential sectors. As of June 2021, both transaction volume and values have increased significantly in the retail sector, compared with the same period (Jan to June) last year. Neighbourhood malls and retail podiums continue to be a sought-after asset category in Hong Kong due to the stability of income, high market demand, and the possibility of value increment after refurbishment or repositioning. Strong sentiment remains, and we expect to see more investment activity in this sector in 2021, particularly from private investors and institutional funds.