Pressure on cashflows has resulted in either company downsizing and 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 second wave containment.
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. Looking ahead, we expect less corporate travel as companies remain under financial pressure, and the recovery in short-haul travel is expected sooner than the long-haul sector. Domestic tourists will continue to support the hotel markets of larger, more populous countries.