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That is compared to the 5-year average of 11.3m sq ft.

Occupational demand in the KL Fringe was also under pressure at 85.8%. The cumulative supply of office space in Klang Valley stood at circa 109.5 million sq ft as of 2H2020 following the completion of Menara TCM in KL City and Menara Star 2 @ Pacific Star in Selangor. Located at the intersection of Jalan Tun Razak and Persiaran Stonor, Knight Frank says the 32-storey Menara TCM was completed in November 2020. The GBI and LEED Gold certified office building offers circa 372,000 sq ft net lettable area (NLA) space and 745 car parking bays. Its typical floor plates are sized from 14,200 sq ft to 15,800 sq ft. Menara Star 2 forms part of the larger mixed-use development of Pacific Star in Seksyen 13 of Petaling Jaya. The latter comprises two office towers, three condominium blocks and a retail podium with a total of 1,875 car parking bays. The 14-storey GBI certified office tower offers circa 251,000 sq ft NLA and comes with typical floor plates of 8,700 sq ft to 14,000 sq ft and slab to ceiling height from 3.8m to 5.5m. Here’s more from Knight Frank: By 1H2021, 12 office buildings are scheduled for completion with nine located in KL City and the remaining three in Selangor. Upcoming completions in the city are Affin Tower and HSBC Tower, both in TRX; The Stride Strata Office, TS Law Tower, UOB Tower 2, Permata Sapura, Menara Great Eastern 2, Legasi Kampong Bharu and Plaza Conlay @ Conlay 301 while in Selangor, they are HCK Tower @ Empire City, Quill 9 Annex and Imazium @ Uptown. Collectively, these completions will add circa 4.9 million sq ft of space to the existing cumulative office supply. Amid growing challenges in the office market, the overall occupancy rate of purpose-built office space in KL City dipped further to record at 69.1% as of 2H2020(p) (1H2020: 69.8%). Similarly, the occupational demand in KL Fringe was also under pressure during the review period and was analysed at 85.8% (1H2020: 86.2%). The overall occupancy rate in Selangor dropped to 77.9% as well during the same period of time (1H2020: 78.4%). There were several notable office related announcements during the review period. Following delays arising from the implementation of various stages of MCO, Phases 1 and 2 of the Merdeka 118 project are expected to be ready by 2Q2022 instead of end 2021. Phase 1 of the development involves the Merdeka 118 office tower and surrounding infrastructure. As of October 2020, the tower is 60% completed with the concrete core structure at its peak (Level 118) and the tower facade at Level 82. Upon completion, it will be Malaysia's tallest building and the second tallest tower in the world as well as the first building in Malaysia to satisfy the triple green building platinum accreditations locally and internationally, namely the Green Building Index (GBI), the Green Real Estate (GreenRE), and the Leadership in Energy and Environmental Design (LEED). The construction of Phase 1 of Bandar Malaysia is expected to commence by June next year, with the kicking off of infrastructure works. In the first phase spanning across 20.23 hectares, there will be several Grade A office towers, hotels, serviced apartments, and luxury residences, which will be developed over four years. Phase 1 of Bandar Malaysia will house more than 12 world-class towers with total gross floor area (GFA) exceeding 12 million sq ft. Estimated to generate a GDV of over RM200 billion, the prime national economic project is expected to resuscitate and jumpstart the Malaysian economy. Sunsuria Bhd, via the acquisition of shares in Bumilex Construction Sdn Bhd, plans to develop two plots of land along Lorong Tuanku Abdul Rahman measuring about 0.47 hectare in total into a high-rise mixed commercial project known as Nadi @ TAR. The project has an estimated GDV of RM524.8 million and will feature seven storeys of retail space, 22 storeys of office suites, a 10-level parking lot as well as three storeys of office space with a multi-purpose hall and one storey of retail space. The construction is set to commence in 2H2021 and scheduled for completion by the end of 2025. KLCC Real Estate Investment Trust (REIT) had, in November, announced the extension of leases with Petroliam Nasional Bhd (Petronas). The extended leases of the office space within Menara 3 Petronas and Petronas Twin Towers will be for a further term of 15 years upon the expiry of the current term, which is 14 December 2026 for Menara 3 Petronas and 30 September 2027 for Petronas Twin Towers. The rental amounts would be determined prior to the commencement of the extended leases. Currently, Petronas is paying circa RM9.00 per sq ft per month and RM11.00 per sq ft per month for Menara 3 Petronas and Petronas Twin Towers respectively. KL33 Properties had unveiled the first ‘Covid Secure’ office space at Menara KL33 in August 2020. A first-of-its-kind in Malaysia, the fully furnished ‘Covid Secure’ office space are specifically reconfigured and retrofitted according to the one-metre physical distancing rule to prioritise the safety, health and wellbeing of occupants and tenants. Along with the refurbishment, KL33 Properties has also introduced ‘Easy Lease Programme’ to help companies to bring their workforce back to office safely without the exorbitant initial set-up costs. Following the disposal to Techvance Properties Management Sdn Bhd in 2015, the 13-storey premises of AmBank Group Leadership Centre at Jalan P Ramlee, is being redeveloped and repositioned into a 180-room hotel. The 26-storey hotel, which will operate as Hotel Indigo Kuala Lumpur on the Park in partnership with InterContinental Hotels Group (IHG), is scheduled to open by 2023. The Jewel, one of the final components of the i-City development, will house an international 5-star hotel and state-of-the art Grade A office. The 70-storey skyscraper is set to be the tallest building in Shah Alam when completed by 2025. The master development of i-City is a 72-acre freehold ultrapolis located along the Federal Highway. The project, with a gross development value (GDV) of more than RM10 billion, comprises corporate towers, cyber office suites, serviced residences, hotels, data centres, a convention centre, and the Central i-City shopping centre.  

The shift to online shopping will reduce demand for retail space, a credit negative as per Moody’s. Moody’s Investors Service says in a new report that the coronavirus pandemic is accelerating changes in consumer and worker preferences, with widespread implications for property companies in the region. “Before the pandemic, social risks such as health and safety were low for property companies,” says Stephanie Lau, a Moody’s Vice President and Senior Analyst. “The pandemic has brought these risks to the fore as employers and retailers adjust their physical spaces, processes and IT in response to changing behaviors and expectations, which means that property companies must also adjust.” As the shift to online shopping accelerates, retail space consolidation will reduce property companies’ revenue and cash-flow predictability, as well as increase their operating costs as they invest in IT to retain retail tenants and consumer foot traffic in their shopping malls. For instance, malls in Hong Kong SAR and other Asia Pacific cities have already launched mobile apps to expand their customer loyalty programs. Although the pandemic has raised the proportion of online shopping in certain Asian markets, in-person shopping will not disappear completely. For example, over 70% of surveyed consumers from Singapore and Hong Kong still value in-store shopping, well above the global average of 55%, according to a report by Adyen Singapore and the Centre of Economic and Business Research. As with retail, flexible work arrangements will likely reduce office rents and shorten lease durations as companies seek greater flexibility and adjust long-tenure leases. But population density, along with work cultures and IT infrastructure will affect the pace and degree to which employers and office property companies in Asia Pacific adapt to changing office needs. Subscribers can access the report “Real Estate – Asia Pacific: Pandemic accelerates changes in consumer and worker preferences, raising social risks” here.  

Land for commercial use will increase to 1.47 square km, or 4% of the total land area.

The work-from-home setup is not likely to significantly reduce demand. When COVID hit the world, the accompanying lockdowns brought the term Work(ing) From Home (WFH) from the margin to the mainstream. This sounded alarm bells around the world, from savvy investors like Warren Buffet to analysts and other market watchers, thinking that the age of the CBD office market is over. Those who believe that WFH will significantly reduce demand for office space have valid reasons but Savills notes that their concerns about demand have not been articulated considering the following: 1. The discrete nature of office leasing terms 2. Time domain 3. New demand By not accounting for these factors, any analysis of the market is likely to fall short of the mark. Savills analyzes the Singapore CBD Grade A Office market to look at how it may permutate over time after we adjoin these three extensions to the mainstream WFH belief that there will be a sharp climbdown in demand. From a list of permutations, Savills inputs their prior probabilities as to which of these are likely to play out in future. This approach is in sharp contrast to providing a singular outcome after just one round of reasoning. Here’s more from Savills: DISCRETE NATURE OF LEASING TERMS This is closely related to the time domain factor. This is because thus far, market observers are mentally forming beliefs which assume that WFH can be instantly mapped to reality. Unfortunately, as a typical office lease contract spans between three and (increasingly) five years, demand may remain relatively constant in the short to medium term. To get to the percentage of leases expiring this year and over the next two years, we looked at the leases expiring in terms of Net Lettable Area (NLA) from the five listed Singapore Commercial REITs CBD portfolios. Graph 1 shows the average leases expiring for the REITs (please note that this is a simple average and not weighted by NLA). For 2020, this is just 9.4% but rises to 24.7% by 2021 before falling to 15.6% in 2022. If we assume that the sample from the five commercial S-REITs listed here fairly represents the universe of CDB Grade A office space here, and if tenants upon lease renewal or expiry decide to reduce their CBD Grade A office footprint by 30%, this action alone will lead to the following increase in vacancy levels over the end-2019 occupancy of 4.4%. The cumulative increase in CBD Grade A vacancies for these three years is 14.9%. (These are just numbers calculated from existing tenants reducing their office space usage. We have not factored in new demand and office buildings taken off the market for redevelopment or retrofitting works.) Owing to the discrete nature of lease renewals, the increase in vacancy levels from 2020 to 2022 will be a series of small stepped down functions. That is, instead of the sudden drop in vacancies, the decline is more gradual (See Graph 3). In other words, because of the discrete length of lease terms, what tenants may wish for in terms of rightsizing their office footprint, cannot be carried out immediately. TIME DOMAIN If the sampled profile of lease renewals and the expected vacancy uplifts translate to our basket of CBD Grade A office buildings, then the much-dreaded contraction in demand would not happen overnight, but in phases. With this stretching of time, other factors come into play which may (or may not) be positive for the market and could (or not) mitigate, supplant or more than overcome the decline in the spatial needs of existing market tenants. There are a couple of points that we have to consider when we add time to the analysis. 1. By 2021, most sectors of the economy will have rebounded significantly on a quarter-on-quarter (QoQ) basis. 2. Landlords may take this opportunity when demand is weak to redevelop their buildings. 3. Physical completion of offices originally slated for 2021 and 2022 has been delayed for nine months due to the construction stop work orders. The final move-in date is prolonged as tenants are faced with further delays at the fit-out stage. All these factors work towards dissipating the negative forces acting on office demand. NEW DEMAND The WFH movement and reduced real business activity are likely to lead to a contraction of pre-COVID core office demand. However, the effects of the pandemic have not been uniform across all sectors. In Q2/2020, all sectors of the economy registered negative YoY growth, with the exception of the finance and insurance industry. International trading of equities, derivatives and other financial instruments have been rising during this period. Those departments within financial companies involved in such activities should at least sustain their current levels of office space usage. But moving forward, there could be growing demand from technology and social media related sectors. CONCLUSION The landscape of Singapore’s CBD office market is likely to change a fair bit in a world with COVID. However, don’t expect an overnight contraction in office demand because office lease expiries are phased out over time. When we factor in the possibility of landlords using the softer market conditions to redevelop their buildings, the delay in new supply caused by the construction stop work orders and the emergence of new demand drivers, the overall impact on the Singapore Grade A CBD offi ce market may not be as negative as some would have you believe.  

The low to mid-income could expect increased government support next year. To safeguard the Malaysian economy against the adverse impacts of COVID-19, Budget 2021 has set a record to be the biggest Federal Government allocation in Malaysia, with a sum of RM 322.5 billion or around 20.6% of GDP.

Luxury volumes have been volatile recently with July’s buoyant mood quickly dissipating due to a third virus wave. Luxury volumes have been volatile over the past few months with the buoyant mood in July quickly dissipating due to a third wave of virus infections and heightened social tensions. According to Savills, total luxury volume (HK$20 million +) surged to 282 in July, the highest in 2020, before falling back to 153 in August. The combined number of transactions for the two months (435) was still slightly ahead of the 419 transactions completed in April and May, though. The sale of 37 Shouson Hill Road in Southside for HK$2.5 billion to Hang Lung Properties was the most significant deal of the quarter, with the developer planning to redevelop the former US consular staff quarters into super luxury detached houses, targeting completion in 2024. Elsewhere two other house sites were sold to investors / individuals eyeing redevelopment, reflecting a firm appetite for developable sites at the top end of the market. Though market sentiment was mixed at best, luxury prices on Hong Kong Island and in Kowloon declined marginally by 0.1% and 0.5% respectively in Q3, as only a handful of distressed assets changed hands. Here’s more from Savills: The New Territories market, in particular houses, continued to attract buyers, given the appeal of low density living, ample outdoor space and the availability of parking, and luxury prices rebounded for a second consecutive quarter by 2.6% as a result. A quick comparison of average house prices by district reveals the substantial price differential between the Peak (with an indicative price range of HK$55,000 to HK$105,000 per sq ft) compared with Sai Kung (where typical average prices range from HK$11,800 to HK$17,500 per sq ft), the latter almost one-fi fth of the former. This phenomenon adds to the appeal of New Territories houses to potential buyers, especially for those who did not need to commute to the CBD frequently. Mass market supported by secondary market revival The mass market was in a buoyant mood with reviving interest in the secondary market due partly to lower down payment requirements from Mortgage Insurance Programme. The secondary transaction volume totalled 25,327 over the first seven months in 2020, a 1.4% rebound from the same period last year. The primary market saw fewer transactions as developers held back project launches due to the uncertain environment, while some were more focused on clearing backlog units with more aggressive incentives. From 2016 to 2018, developers were aggressive in primary launches with the number of primary unit launches (averaging around 20,000 per annum) consistently higher than the number of units being sold (averaging around 17,000 per annum). 2019 saw this trend reverse for the first time and this remained the case over the first eight months of 2020 with only 6,500 primary units launched but more than 9,000 primary units sold, representing a change in launch strategies by developers over the past 18 months when market sentiment has become more subdued. Outlook The potential reintroduction of the vacancy tax could see further changes to primary launch strategies in the near future. Assuming the proposed vacancy tax to be effective from 2021 onwards, as many as 8,600 completed but not yet sold units would be subject to the 5% levy on sales price on an annual basis, which would most likely prompt developers to speed up sales of such units. Adding another 54,000 units under construction (construction which began in 2019 or before) but not yet sold or launched, the primary launch pipeline in 2021 could be substantial, in particular given the cautious launch programmes witnessed this year. Looking ahead, the full impact of COVID-19 may be felt towards the end of the year if the government tapers subsidies and we see more corporate layoffs pushing unemployment rates to new highs. The unemployment rate currently stands at 6.1%. With uncertain economic prospects and a volatile stock market, residential volumes and prices may have to endure a bumpy ride to the end of this year. Luxury apartment prices on Hong Kong Island have fallen by 8.6% from their previous peak in Q2/2019 and are expected to slip by a further 3% to 5% towards the end of this year given the uncertain environment. Looking into 2021, with economic growth expected to remain weak, unemployment expected to hit new highs and developers likely to accelerate launches, luxury prices may come under further pressure, possibly declining by another 5% to 10%. Low interest rates and ample liquidity will provide some market support, however. Difficult variables to predict include the containment of COVID-19, future US-China relations, and the possibility of resurgent social tensions.  

The increase in APAC investment volumes was driven by China (-10% yoy), South Korea (-2% yoy) and Japan (-18% yoy). Commercial real estate markets in Asia Pacific had a better third quarter this year than second quarter, led by investment in China, Japan and South Korea.

CBD Grade A office rents may settle at a lower baseline, says Savills. Grade A CBD offices saw occupancy levels decline from 94.3% in Q2/2020 to 93% in Q3/2020 due in part to tenants giving up shadow space upon lease renewals or pre-termination arising out of business closures.

This is after rents have fallen by 11.9% over the first three quarters of 2020. The city’s Grade A office vacancy rate rose to 6.8% at the end of September 2020, from 4.7% at the end of 2019. According to Savills, the surging vacancy rate during the period was attributed mainly to worldwide economic recession, which has inevitably resulted in corporate downsizing and the surrender of office space. Decentralisation continues to prevail with more Central-based financial and business services firms moving to other districts (e.g. Wan Chai/Causeway and One Island East). Most businesses have resumed normal working patterns but some multinationals are still allowing staff to work from home. Here’s more from Savills: Retail and hospitality have been greatly impacted by the pandemic, together with finance and business services. This is reflected in the rising vacancy rate in the CBD. Medical and online businesses are examples of sectors that have been relatively less affected. In order to attract tenants, landlords are currently offering longer rent-free periods as an incentive, rather than shortening the lease term to less than the typical term of three years. Developers and investors are more cautious when considering land acquisitions, and the Development Bureau recently delayed the tender of New Central Harbourfront Commercial Site 3. We expect rents to fall by a further 7.5-10% in a year’s time, after rents have fallen by 11.9% over the first three quarters of 2020. The vacancy rate is expected to continue rising given sluggish leasing activity and 1.4 million sq ft of new supply due to complete in 2021. What advice would Savills give a 30,000 sq ft CBD occupier with a lease event in 12 months’ time? The occupier should start the planning process (e.g. solicit and consider options) now since many 30,000 sq ft CBD occupiers start their search for available options one year before expiry. Typically, it requires six to nine months for the entire renewal/relocation decision.  

The slight growth was driven by the price increases in RCR and OCR. Alongside surging transaction volumes, private home prices also defined the negative impact brought on by COVID-19. According to the URA’s latest statistics, the island-wide price index of non-landed private residential properties inched up by 0.1% QoQ in Q3/2020. By market segment, the overall price growth was fuelled by the rest of central region (RCR) and outside central region (OCR), which posted quarterly growth of 2.5% QoQ and 1.7% QoQ respectively. Relatively higher prices achieved in newly launched projects compared to the vicinity was the main reason behind the increase. In contrast, prices in the CCR experienced a contraction of 3.8% QoQ. Lower prices in resale transactions, together with limited new sales, could be blamed for the price drop in this market segment. The average prices of high-end non-landed private residential projects in Savills’ basket also fell in the reviewed quarter, though at a much moderate pace of 0.2% QoQ. Year-to-date, prices registered a marginal 0.9% decline. The decline should also be seen in the context of a limited number of transactions, inferring that the sellers in our basket of high end non-landed properties are not under great duress to offload their properties. Supply Based on the data released by the URA, there was a total supply of 50,369 uncompleted private residential units in the pipeline with planning approvals in Q3. About 52.6% of this pipeline supply, or 26,483 units remained unsold at the end of Q3/2020. This is about 5.3% lower than the 27,977 in the previous quarter.  

Department store rationalisation will significantly contribute to rising vacancy and falling rents. Shopping centres were once synonymous with fashion, but now this is changing. According to JLL, fashion or apparel retailers still make up around a quarter of specialty tenancies across Australian shopping centres (excluding large format retail). There are over 15,000 specialty stores across the fashion sector, including both privates and national chains, domestic and international retailers, and also footwear and accessory retailers. Here’s more from JLL: Apparel retailers account for the greatest proportion of specialty GLA (gross lettable area) across CBD, regional and sub-regional assets. However, leasing demand from apparel tenants has been moderating for several years, and COVID-19 has accelerated many existing pressure points for this category of retailers. Fashion spending is highly discretionary and long-term patterns show Australians are allocating less of their household budget towards fashion-related purchases. Prior to the COVID-19 pandemic, the clothing, footwear and personal accessory retail category comprised 7.9% of total retail spending (2019, ABS). Fashion’s share of retail spending has gradually trended downwards from 10.5% recorded in 1985. This decline in fashion spending is largely due to price deflation, which has been driven by improvements in production efficiency and rising domestic and offshore competition over the past 20 years. This has resulted in the increased availability of cheaper items. Apparel retailing has also been the most volatile category of spending during the COVID-19 pandemic. In the month of April, apparel spending fell 53.6%, before rebounding 129.2% in May. As of August 2020, apparel spending has declined by 8.6% y-o-y. The Australian fashion industry is facing a range of challenges, as reflected by the growing number of insolvencies in the industry with nearly 600 fashion stores across major retailers exposed to voluntary administration in 2020 so far. The highly competitive environment is leading to price and margin pressure, which is impacting retailers’ ability to pay rent. Strong competition and supply chain disruption are also challenging the e-commerce space. Pure-play fashion-tech retailers are attracting high levels of capital, but investments are not always paying off. An analysis by McKinsey (2020) showed that a $100 investment in fashion-tech IPOs over the past two years would now be worth $73. Fashion e-commerce has also not been immune to voluntary administrations. Global online fashion retailer, Nasty Gal, raised USD 40 million in 2012, but then filed for bankruptcy in 2016. Similarly, Australian athleisure online retailer, Stylerunner, entered voluntary administration in 2019 before being bought by Accent Group, a listed retailer with 524 stores. Interestingly, omni-channel retailing has been part of Stylerunner’s recovery. The retailer is opening its first brick-and-mortar store (280 sqm) in an affluent neighbourhood precinct (Armadale, Melbourne) in late 2020, with further openings anticipated in 2021. Competitive pressures in the fashion industry have resulted in a number of apparel retailers seeking to downsize their networks as they migrate more sales online. The first is insolvency-driven rationalisation, where a business is closed or restructured with a reduced network, and the second is strategic rationalisation, where the retailer chooses to downsize its store network to improve profitability. While there is expected to be a significant amount of store rationalisation within the industry, the stores that retailers retain will look and feel very different to their traditional format. One of the largest challenges that retailers face is blending online with offline, both in terms of how customers interact with stores and how store performance metrics are assessed. The success of performance tracking will in turn influence leasing demand and rental affordability. The apparel industry has become highly dynamic, which has disadvantaged many legacy retailers that hold a significant amount of Australian shopping centre floor space. COVID-19 has accelerated the financial impacts of these pressures and an increase in retail vacancy is anticipated as these retailers rationalise space, either because of formal restructuring or store network rightsizing. Department store rationalisation will also significantly contribute to rising vacancy and falling rents. JLL forecasts that regional specialty rents will decline 11.4% peak-to-trough in the current cycle, implying a negative re-leasing spread of 23.4% for five-year leases with 4% fixed annual increases. With the future of larger shopping centres likely to be centred on human interaction and experience, there are a number of backfill uses for former fashion store space that will support the transformation of the industry. Fashion is not completely leaving shopping centres, but it will be a smaller component and look entirely different as brands strive to provide convenience and experience. Read the full report here.  

Rents are still comfortably above levels seen just prior to the Global Financial Crisis. In order to illustrate trends in the central Tokyo residential market, Savills has segmented Tokyo’s 23 wards into seven distinct geographical areas: Central (or “central five wards”), South, West, North (Inner and Outer) and East (Inner and Outer). After reaching a record high, Savills reveals average rents for the 23W and C5W have contracted for two consecutive quarters for the first time since 2016 and have fallen below their four-period moving averages, possibly indicating that the market has entered a downturn. Indeed, it appears that latent demand has yet to manifest following Tokyo’s soft lockdown in April and May. Here’s more from Savills: With an ongoing COVID-19 outbreak in the capital, many companies are continuing remote working arrangements whilst major universities intend to do the same in the form of an online semester. The population of Tokyo Prefecture has thus remained flat since reaching a high watermark of 14 million in May. This, combined with restrictions on prospective foreign residents entering the country, has disrupted demand for residential units in the 23W. While landlords may find less demand for vacant units over the coming months, most can rest assured that their tenanted properties will maintain stable performance for the time being. Japan’s unemployment rate stands at 3.0% as of August 2020, only 0.8ppts higher than its record low of 2.2% in December of last year. As such, tenants should generally have the capacity to pay their current rents. That said, labour demand has clearly fallen, with the job-to-applicant ratio dropping from 2.08x in December 2019 to 1.22x as of August. This will inevitably weigh on incomes and put downward pressure on rental growth going forward. As rents generally fell faster in the outer submarkets in Q3, the C5W’s premium has expanded by 1.1ppts to 18.5%. Only the Outer East submarket posted growth for the quarter, perhaps because of its affordability. This contraction is not occurring across the board, however, as larger units and layouts with multiple rooms have seen rents grow so far this year. Average occupancy in the 23W remains comfortably high, rising 0.2ppts QoQ to 96.6%. The number of residential listings continues to increase, however, suggesting that a disruption to leasing demand may lie ahead. Though leasing activity resumed following the April and May lockdown, it remains somewhat slower than in previous years. C5W occupancy falling below 95% is a case in point. Indeed, pent-up demand was not as robust as landlords had originally hoped and this is likely to be true until at least the end of the year. MID-MARKET RENTAL TRENDS BY SURVEY AREA Average multifamily asking rents for the 23W have fallen by 1.5% QoQ, landing at JPY4,076 per sq m as of Q3/2020. Rents are still 0.8% higher YoY, remaining comfortably above levels seen just prior to the Global Financial Crisis. In a reversal from the previous quarter, rents in the C5W saw a less pronounced drop of 0.5% QoQ and remain 1.8% higher YoY. Some of the more expensive submarkets in the 18 outer wards (18W) pared back the rental gains made last quarter, though all submarkets have maintained higher rents on an annual basis. Each ward in the C5W – save for Shibuya – experienced a quarterly decline in average rents. With Minato’s rents declining 2.0% QoQ and those of Shibuya rising 2.0% QoQ, the latter has once again taken the top spot for average rents in Tokyo. In fact, following steady growth over the past year, the submarket has seen an 8.0% YoY increase in rents, second only to the highly-discounted Edogawa in the Outer East submarket. Following nine consecutive quarters of growth, the South submarket saw rents remain more or less flat in Q3/2020, falling just 0.1% QoQ to JPY4,168 per sq m. As in the previous quarter, Meguro marked the strongest growth – coming in at 1.4% QoQ and 7.6% YoY. Rents in the ward are now higher than those of both Chuo and Shinjuku in the C5W. The number of new-unit listings in Meguro has nearly doubled over the past year, potentially contributing to this gain. The ward’s proximity to Shibuya and Minato, combined with the availability of green spaces and a charming riverfront, could be making the area more attractive in the wake of COVID-19. However, the high number of new-unit listings could imply less demand and rents could fall once these units are leased out. Nearby Shinagawa gave back some of its recent gains with a 2.2% drop in rents over the quarter. All wards in the South still have higher rents on an annual basis. After demonstrating impressive annual growth of 8.2% as of last quarter, the Inner North submarket saw a pullback in rents during Q3. Specifically, rents fell 3.1% QoQ – the most significant decline of any submarket this quarter. This pullback was led by Bunkyo, which, after posting robust growth of 4.4% last quarter, saw those gains disappear with a 4.8% QoQ contraction this time around. Despite this significant drop, rents across the ward remain 5.1% higher on an annual basis. Nearby Toshima posted a milder contraction of 1.2% QoQ, though the ward’s performance on an annual basis is far less impressive. On the other hand, given the ward’s significant discount to both adjacent Bunkyo and the C5W, and strong commercial development pipeline, there may be more upside potential in Toshima in the years to come. The Inner East submarket has similarly seen a contraction after a period of robust growth, with rents falling 1.6% QoQ, but still up 4.0% YoY. With the largest rental growth last quarter, Sumida saw the most significant decline in rents this quarter, falling 4.2% QoQ. Average rents in the ward are still up 4.8% YoY, however. Taito and Koto marked YoY growth of 4.4% and 3.0%, respectively, though rents in the former fell 0.5% while those of the latter remained flat on a quarterly basis. The West submarket felt a mild contraction of 0.5% in Q3/2020, and average rents now stand at JPY3,682 per sq m. Nakano, which led the submarket’s growth last quarter, saw rents fall by 0.3%, while those of nearby Suginami remained flat. Rents in Nerima, the most discounted ward in the submarket, declined by 1.2% QoQ. Each ward in the submarket is maintaining higher rents on an annual basis, with Nakano taking the lead at 4.9%. The ward appears to have many times more listings than in the same quarter last year, which is likely a key contributor to its robust annual performance. As in Meguro, however, the spike in new listings could indicate a drop in demand, while also setting the ward up for a larger contraction in rents next quarter. The Outer North submarket saw rents soften once again after a 0.6% QoQ drop. Itabashi continues to see its rents recover somewhat after falling from a historic high in Q3/2019, posting growth of 0.9% QoQ but still down 5.7% YoY. Kita experienced a softening of 2.0% QoQ, but still maintains a 6.8% premium over the same period last year. The Outer East, the 23W’s cheapest submarket, was once again home to the strongest growth of all surveyed submarkets this quarter, with rents increasing 2.3% QoQ and 4.6% YoY to JPY3,129 per sq m in Q3/2020. Each ward in the submarket save for Katsushika saw growth this quarter. In a divergence from last quarter, Edogawa, the least expensive ward in the 23W, saw rents grow 8.7% QoQ, the strongest growth of any ward in Tokyo this quarter. This appears to have largely been an upward correction given that Edogawa saw rents decline in the first two quarters of the year. As such, despite its quarterly contraction, Katsushika still produced annual growth of 7.8%. The Outer East is the most suburban submarket in the 23W and recent rental growth here may reflect a growing preference for a less urban environment and more affordable areas. Recent occupancy trends add some validity to this argument.  

Manila is a close second with a 10% increase in prime prices. A surge in demand post-lockdown as luxury homeowners re-evaluate where they want to be and the type of property they want to live in has boosted sales and supported luxury prices across several key markets. According to Knight Frank, the index increased by 1.6% in the year to Q3 2020 with 62% of cities continuing to see prime prices increase year-on-year. That said, the percentage of cities registering annual price declines is creeping up, from 23% at the end of 2019 to 38% in Q3 2020. Here’s more from Knight Frank: Auckland (13%) leads the index, but what is notable is the resilience of a number of cities including Manila (10%), Seoul (7%), the Swiss cities of Zurich (7%) and Geneva (6%), Stockholm (5%) as well as the recovery of Chinese cities such as Shenzhen (9%) and Shanghai (6%). It is perhaps not surprising that traditional safe havens, countries that are considered to have handled the pandemic efficiently or applied a lighter touch, plus those markets that are already witnessing an economic rebound have moved higher in the rankings. With travel restrictions in place across much of the world this demand remains primarily domestic in nature. North America not only has three cities in the top ten annual rankings – Toronto (8%), Vancouver (7%) and Los Angeles (6%) but the region has snatched the crown of strongest-performing world region from Australasia this quarter. Vancouver’s recovery continues to surprise having sat low in the rankings for the last four years following the introduction of a 20% foreign buyer tax. Low mortgage rates and pent up demand released post-lockdown saw sales across Greater Vancouver reach 3,643 in September, up 56% year-on-year. In an age of uncertainty, buyers are looking more favourably at luxury property, mirroring what we saw in 2008. With equity markets volatile, Brexit looming large, the repercussions from the US presidential election expected to rumble on, and further waves of the pandemic hitting Europe and the US, property’s credentials as a safe and tangible asset class are rising to the fore.  

But the economic recession and mounting market uncertainty continued to weigh on housing prices. With the COVID-19 outbreak easing and some of the social-distancing restrictions lifted, purchase sentiment in the residential market improved. Knight Frank reveals the sales market became more active in September, with transaction volume increasing by 15% MoM to 5,024 units. The primary market, in particular, was under the spotlight, given a number of new project launches, including CK Asset’s Sea to Sky in Lohas Park, Sun Hung Kai Properties’ Wetland Seasons Park in Tin Shui Wai, and ITC Properties and URA’s Hyde Park in Cheung Sha Wan. Here’s more from Knight Frank: Most recently, the first two batches of flats at New World Development and MTR’s The Pavilia Farm in Tai Wai was heavily oversubscribed by 57 times, the highest subscription rate since 1997. However, the economic recession and mounting market uncertainty continued to weigh on housing prices. According to the latest official statistics, overall residential prices dropped by 1.1% MoM in August. This was the largest decline since February, resulting in a price gain of only 0.4% so far this year. In the luxury market, some homebuyers successfully leveraged the price correction amid a more volatile market to get on the property ladder, most targeting apartments priced at HK$20–30 million. The leasing market regained momentum during the month. Flats that were put on the market were leased out quickly since landlords were willing to negotiate. There were more enquiries from expatriates who plan to come to Hong Kong early next year. Serviced apartments offered deeper discounts, as they faced competition from hotels offering long-stay promotion packages and other attractive offers. Looking ahead, the primary sales market is expected to remain active with a few new projects scheduled for launch in the fourth quarter. Developers may provide more incentives and discounts to speed up sales before the year end. With more units available for sale and protracted negative market factors, we expect housing prices to drop by 3–5% in the rest of 2020.  

It’s a reversal from a four-quarter decline which began in Q3 2019. The uptick was mainly lifted by an uptick in strata sales for multiple-user factory and warehouse properties, such as Mega@Woodlands and Oxley Bizhub. The demand could have come from firms, particularly in printing as well as event organising, who are downsizing their real estate footprint. Furthermore, Savills notes that some companies in healthcare and the aquaculture industry (i.e. frozen seafood) are also looking to acquire larger facilities to support their business expansion as the pandemic has benefited them. Although there is a growing buying interest among automotive players, especially when there are more single-user factories up for sale, most of them did not translate to actual sales as the prospects are still waiting for better offers before the lease expiry of their current premises. Here’s more from Savills: While some owners maintained their price expectations, particularly for freehold assets, data from JTC showed that overall industrial prices fell by 2.2% QoQ in Q3, making it the largest decline in the last four consecutive quarters. Similarly, Savills’ basket of leasehold industrial properties also continued to register declining prices in Q3. Prices for 60-year leasehold properties fell at a moderate pace of 0.9% QoQ to S$425 per sq ft, while that for 30-year leasehold properties fell by 2.2% QoQ to S$301 per sq ft due to depleting lease terms. As there is a scarcity of freehold industrial stock available currently, especially in prime locations, freehold industrial prices held firm, recording a marginal rise of 0.2% QoQ to S$694 per sq ft.