Prime Benchmark - January 2021

Prime office rental markets in most cities entered a down cycle in 2H/2020, with rental movements ranging from -9.4% (Hong Kong) to +1.5% (Shanghai).

Besides Shanghai, only Taipei recorded a positive growth of 0.9%. Pressure on cashflows has resulted in company downsizing and cost cutting despite substantial fiscal and monetary stimulus. Office rents dropped by -3.5%, -3.1% and -3.0% in Beijing, Singapore and Osaka respectively. The downward trend in office demand looks set to continue into the first half of 2021. In addition, most currencies continued to appreciate against the USD. Hong Kong remained the most expensive prime office market in the region, even as average rates fell from US$267 in 1H/2020 to US$242 per sq m per month net in 2H/2020. 

Prime retail markets were severely disrupted by the pandemic with rental movements from -41.6% (Jakarta) to +2.6% (Guangzhou). In Jakarta, with strict social distancing measures and restrictions on mall opening hours, landlords were pressured to provide rental relief, and many of them slashed rents by half. In China, retail footfall recovered, and rents increased by 2.6% and 0.5% in Guangzhou, Shanghai, while softening by 2.8% and 1.5% in Beijing and Shenzhen. Vietnam’s retail markets were resilient with total retail sales of goods and services up 5.6% QoQ in Q4/2020. Rents in Ho Chi Minh City and Hanoi increased by 2.1% and 0.1% respectively. 

The logistics market has proven to be highly resilient and will remain a key focus in the region, with rental movements ranging from -0.4% (Shanghai) to +7.3% (Singapore). The pandemic accelerated a shift to online retail, and logistics assets were the major beneficiary. In Singapore, most warehouses are at capacity and some spillover demand has been seen in traditional factory space. In China, driven by rising domestic consumption and e-commerce, demand for modern logistics facilities is expanding rapidly. Beijing (+0.7%), Shanghai (-0.4%), Shenzhen (+2.4%) and Guangzhou (+3.0%) all entered an early upswing.

Luxury apartment rental markets presented a mixed picture. In Hong Kong, the market saw robust growth (+8.7%) and remained the most expensive city in the region in which to rent a luxury apartment. In China, weak market sentiment was seen in Beijing (-5.2%) and Guangzhou (-0.8%), while Shanghai (+2.2%) and Shenzhen (+4.5%) registered modest growth. In Manila and Kuala Lumpur, rents dropped by 6.4% and 3.3% respectively. 

The hotel markets struggled to stay afloat, with rents falling from -53.7% (Manila) to -0% (Osaka). Any full-blown recovery in the hotel market is dependent on the availability of a vaccine and the status of cross-border restrictions. Cities reliant on overseas tourists continued to see dramatic declines in rates, including Manila (-53.7%), Hanoi (-44.1%), Kuala Lumpur (-39.6%), Hong Kong (-29.1%), and Tokyo (-22.2%). Cities with a strong domestic tourist base such as Beijing (-4.1%), Shanghai (-5.4%) and Taipei (-5.8%) fared a little better. Tokyo remained the most expensive hotel market in the region, with average rates of US$651.9 per room per night.