Street smarts

The pending sale of a MOP380 million shop building in downtown Macau represents one of the latest instances of the local commercial property market slowly returning to its glory days on the back of a rising economy

Besides the regular economic data published by the government there are a number of reality gauges which genuinely reflect the health of the city’s economy, such as shops in the central prime tourist area. Two to three years ago, when the territory’s economy was struggling from the turmoil visited upon the gaming industry, dozens of downtown stores were stood vacant on streets from Senado Square to the Ruins of St. Paul’s. 

But as the local economy is expected to rise for two straight years in 2018 after three years of decline, merchants and brands have gradually crept back to the downtown hub. Coupled with the recent sales of shops in the central area with a whopping price tag, these all signal that the central area – and the overall commercial property market – is back on track, say real estate brokers. 

The pending sale of a commercial property that has recently caught the market’s attention is a three-storey building on Rua da Palha close to Rua de Sao Domingos, boasting a floor area of 2,130 square feet (197.88 square metres). Official property records reveal that the Lee siblings and their partners – namely, Lee Yuet Ming, Lee Yue Seong and others – own the building through inheritance. They could not be immediately reached for comment on this story. 

According to authorised sales agent Centaline (Macau) Property Agency Ltd., the owners have asked for HK$380 million (US$48.41 million) for the building – or HK$178,403.8 per square foot – and expect it could attract the interest of a number of investors and end-users. The agency did not say when a sale is expected to be concluded. 

The asking price of the building represents a steep hike from the sale of similar properties in the central area just a few years ago. Apparel retailer Bossini International Holdings Ltd. sold a commercial property of 279 square metres (3,003.1 square feet) on Avenida do Infante do Henrique for HK$350 million, or HK$116,546.2 per square foot, in 2016, when the local economy was still in free-fall. 

More sales 

Centaline justified the asking price of the Rua da Palha property by its prime location, situated in the tourist area with constant foot traffic, as well as a stable rental yield. “The shop rents in the city’s downtown area once reached HK$2,000 a square foot, but declining gambling revenue slashed rental levels 20-30 per cent around 2015,” said the property brokerage. “Given the [current] rising tourism and economy, rental levels in the area are now back to a high level.” 

Government figures show the number of visitors to Macau was 16.81 million in the first half of this year, surging 8 per cent from the previous year; the figure for the whole year is poised to surpass the record arrival of 32.61 million of 2017. The city’s quarterly retail sales also jumped to a new high of MOP20.74 billion in the first quarter of this year, skyrocketing more than a quarter from a year earlier, the official data show. 

“Given the [current] rising tourism and economy, rental levels in the [central] area are now back to a high level,” says Centaline Macau.

With retail recovering in the gambling enclave, more transactions have taken place in the downtown commercial property market in recent times. On the heels of two noteworthy transactions of HK$120 million and HK$130 million on Rua do Sao Paulo last year, a 70,000 square foot retail development project at the intersection of Rua da Sé and Travessa do Roquete changed hands for HK$800 million earlier this year. 

Macau Property Opportunities Fund Ltd. claimed a huge profit from the sale of the site adjacent to Senado Square and Macau Post having acquired the premises for US$15.96 million (HK$125.28 million) in 2007. It also alleged that the sale had achieved a premium of 14 per cent on the property valuation of HK$703 million at the end of last year.  

Despite the plan to redevelop the building into a shopping mall the project has not got off the ground for years, and it is not immediately known whether the new owner – a joint venture spearheaded by City Universe Limited, a wholly-owned subsidiary of Chinese state-owned firm China State Construction International – will proceed with the plan. 

No more vacancies 

Besides the changing hands of commercial properties, fewer vacant shops are now seen in the downtown area, signalling the turn of the tide in the local retail industry. “Some of the [downtown] shop units which were [still] vacant in 2017 have been occupied by tenants from different sectors, including sportswear and accessories, shoes and cosmetics,” says Oliver Tong, Head of Retail and Markets at Jones Lang LaSalle (Macau) Ltd.  

“The number of enquiries about high street shops and retail space in shopping centres in prime locations has increased significantly,” he says. “In the past, most of the enquiries were from active retailers operating within the same area [but we have recently] received an increasing number of enquiries from new entrants from different countries like Malaysia, Singapore and Korea, mainly in the fields of food and beverage, and experiential entertainment.” 

According to the 2018 interim review of the property agency for the Macau market, the overall capital value and rental of shops in the city remained stable in the first half of this year, while the annual return yield of shops remained unchanged at about 1.8 per cent. A number of new shopping malls and resorts is to be opened in the future, such as Grand Lisboa Palace, boosting new supply in the market and reining in the hike in capital values of shops, the brokerage notes. 

A new retail space located on Rua de Sao Domingos in the central area – the ‘Yellow House’- is also slated to open this year. Developed by Circle Property Development Ltd. and Henry iAn Investment Ltd. The four-storey building, located adjacent to heritage-listed Lou Kau House, could boast a retail space of 2,589 square metres.  


HK$178,403.8 sq. ft. 

Asking price of a commercial property on Rua da Palha 

 

MOP6.7 billion 

Total value of shop transactions in 1H 


Bridge effect 

Government figures show that the number of shop transactions in the first half of this year totalled 398, up 24.4 per cent from a year earlier and representing the highest half-yearly figure since 2014, prior to the plummeting of gaming revenues for more than two years. The total value of shops transacted amounted to MOP6.7 billion in the January-June period of 2018, surging 78 per cent year-on-year and also translating into the highest half-yearly figure for four years. 

Besides growing retail sales, government intervention in the home property market has also spiked the number of commercial property transactions so far this year, according to Roy Ho Siu Hang, director of Centaline Macau.  

“While non-first time buyers of home properties have to pay higher tax after the new rules were introduced earlier this year . . . stamp duty for commercial properties has remained the same, attracting the interest of investors,” he explained, referring to the new stamp duty introduced in February imposing a levy of 5 per cent on buyers acquiring a second residential unit and 10 per cent on a third or more properties. 

Ho is more bullish about the future of the commercial real estate market here because of the imminent opening of the Hong Kong-Zhuhai-Macau Bridge, which will substantially shorten land transportation time between the three cities.  

“With the opening of the bridge,” he maintains, “more non-local firms are expected to invest in Macau and push up shop transactions and rentals.” 


Office price at record high 

The average price for office properties soared to a record high this year, while the number of transactions rose to a four-year high due to the growing economy, official figures show. 

Data from the Statistics and Census Service reveal that the number of office transactions totalled 181 in the first half of 2018, the highest since the first six months of 2014. The average transaction price amounted to MOP168,954.7 (US$21,119.3) a square metre in the January-June period, the highest since data was available in 2007. 

According to Jones Lang LaSalle (Macau) Ltd., rental levels for the overall office market and Grade A office market in the first half of this year grew 5.4 per cent and 5.3 per cent year-on-year, respectively. The annual return overall and Grade A office properties stood at 2.7 per cent and 2.6 per cent, respectively, in the same period, the brokerage remarked.  

Given the continuous limited supply of office properties, some landlords have decided to reclaim them for self-use upon the expiry of existing tenancies. Jones Lang LaSalle says it expects to see an increasing number of office relocations in the future, with the office property market nevertheless remaining upbeat.  

 

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