Real Estate: Shops affected most by gaming downturn

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Amid the ongoing downturn of the gaming industry, the city’s street-level shops, especially those located in tourism areas, recorded significant double-digit drops in their sale prices and rental during the first half of this year, local realtors Centaline (Macau) Property Agency Ltd. and Jones Lang LaSalle (JLL) Macau both said yesterday. Associate director of Retail of JLL Macau, Oliver Tong, said during a press briefing by the agency yesterday that overall shop rentals had experienced a decline of 5.8 per cent in the first half compared to the end of 2014. However, owners of street-level shops might have even seen the rental of their shops slumping by 30 per cent during the six months. In fact, the drop in the rental of the city’s street-level shops is most apparent in those located in the central and NAPE districts. According to data provided by Centaline in another press briefing yesterday, the average leasing price for street-level shops in the central area were slashed 45 per cent year-on-year to MOP206.5 per square foot during the first half of this year vis-a-vis MOP300 per square foot one year ago. In addition, the west part of NAPE near the casinos also saw rental decline on average 15 per cent year-on-year, or 30 per cent as compared to its hike period, the senior regional sales director of Centaline, Roy Ho Siu Hang, said. With shop rentals in the central area having dropped a lot, Mr. Tong perceives that the decrease is due to shopowners having asked too aggressive a price before. “[The shopowners] were asking rather aggressive rentals during the second half of last year so you could see the rental market was kind of deadlocked at that time. Many tenants said that they could not afford the rental, and some of the shops were thus left vacant,” Mr. Tong said, indicating landlords were eventually willing to lower rentals during the first half of this year. Although some shops were given up by the retailers, Mr. Tong said the shop leasing market has already found support following the decreases in the rental prices, indicating many of these ‘abandoned’ shops are now occupied by famous international retailers. This kind of situation is also happening in NAPE, according to Centaline’s Roy Ho. “Since the second quarter of this year, you can see that the market has stabilised. I think you’ll start seeing shops [that were left vacant] being renovated again soon,” Mr. Ho said. Shop sales Meanwhile, Centaline data also indicates that shop values in the central area have plunged by more than a half, or 51 per cent, year-on-year, to MOP41,092 per square foot during the six months from MOP84,000 per square foot one year ago. The total number of transactions for street-level shops totalled 350 during the period. Despite describing the number as the worst since the financial tsunami of 2008, Mr. Ho said that the market had become more active from the second quarter, during which transaction reached 250 – as shop landlords reluctantly lowered sale prices after realising the recovery of the gaming industry will not materialise soon. “Following the leasing values of their shops largely declining, shopowners, especially those owning high-standard shops, were willing to adjust their prices from the second quarter. The movement, in fact, boosted a great amount of deals in the central area, [enabling] the average sale price of shops in the second quarter to increase to MOP47,086 [from MOP34,378 per square foot in the first quarter],” Mr. Ho said. The property agent said some shopowners in NAPE had also reduced their asking price for their MOP100 million shops by more than 30 per cent, and had successfully attracted some buyers for self-use. Nevertheless, both the sales price and rental of the shops in the livelihood areas, such as the northern district, were not likely affected by the downturn of the gaming industry as they are servicing residents as opposed to tourists, according to Mr. Ho. Office The leasing value of offices, meanwhile, recorded a slightly growth during the first half of this year. JLL Macau thinks that the rental, as well as the sales price of offices will remain stable in the second half. Centaline’s agent, however, perceives that both values will decline. According to JLL Macau’s own index, the overall rental for offices slightly rose by 0.5 per cent during the first six months, compared to the end of 2014, while that for Grade A offices in the city even registered growth of 5.7 per cent. Centaline’s data also indicated that that the average rental cost of offices had increased to MOP24 per square foot on average during the first half from MOP17 one year ago. However, the real estate agency indicated that the sales price of offices had decreased by 6 per cent year-on-year. On a different comparison, JLL said capital values fell by 4.8 per cent compared to the end of 2014. “The property market has not yet found support for the transaction of offices. As such, both sales prices and rental of offices may decline continuously,” Mr. Ho said. Meanwhile, JLL Macau’s associate director of Capital Markets, Alison Yip, holds a different opinion. “With the rising office rentals in Nam Van district amidst the declining office capital values, the investment yields of Grade A offices rose significantly to 2.3 per cent while the overall office sector recorded a 2.6 per cent decrease in the second quarter of 2015. We expect both office sales and leasing markets in Macau to remain stable in 2015,” she said. Home prices On the other hand, the director of Centaline Macau Jacky Shek Po Tak estimated that the city’s home prices have rebounded since the second quarter following increases recorded in the number of transactions. The Centaline director claimed that housing prices in the second quarter of this year reached some MOP93,653 per square metre, a slight increase of 5 per cent year-on-year. According to Mr. Shek, the total number of transactions in the first half of the year might total 2,700, of which 1,650 were transacted during the second quarter. Meanwhile, JLL Macau’s head of residential, Jeff Wong, indicated that capital values for high-end and mass-to-medium residential sectors fell 17.1 per cent and 11.6 per cent year-on-year during the first half, respectively. Nevertheless, he said that the investment return for residential units, on the contrary, had registered a slight growth year-on-year. According to Mr. Wong, the investment return for high-end and mass-to-medium residential units was 1.9 per cent and 2 per cent during the six months, up 0.03 percentage points and 0.1 percentage points year-on-year, respectively. Predicting housing prices in the second half, he claimed prices may still have room to decrease by no more than 5 per cent during the rest of the year. “Taking into account the abundant new residential supply in the first half, we expect to see a mild consolidation in both residential sales and leasing markets during the second half of 2015,” Mr. Wong said. Centaline’s director, on the other hand, perceives that housing prices will stabilised from the third quarter of the year as landlords who were rushing to sell their properties have already sold their units during the first half; as such, the remaining landlords in the market are primarily those asking for more solid prices. Residential rental The JLL residential head said that the rental of the mass and medium residential market had decreased by 5.5 per cent during the first half as compared to the end of 2014 due to the new supply of housing in the sector. In addition, the rental of high-end residential units had plunged 11.7 per cent year-on-year during the first half, following the junkets’ disposal of their luxury housings. “We believe that the rentals for mass and medium residential units will stabilise [in the second half] at the current level following the upcoming new projects opening that will give a solid support to the rental sector due to it increasing the [amount] of imported labour,” Mr. Wong said, claiming the luxury market will experience more pressure. “However, we believe that most of the correction [to the property market] has already been realised. So, for the rest of the year, the range of the correction [in prices] will be within 5 per cent only,” the JLL agent claimed.