REIT ASIAPAC
OUTLOOK
GPR APREA COMPOSITE AUSTRALIA REIT INDEX (BY SECTOR)
150.00
140.00
130.00
120.00
Industrial
110.00
Office
100.00
Residential
90.00
Retail
80.00
70.00
60.00
Apr
2014
Oct
2014
Apr
2015
Oct
2015
Apr
2016
Oct
2016
Apr
2017
Oct
2017
Apr
2018
Oct
2018
SUNLIGHT REIT
UNDERTAKES
STRATEGIES TO TAP
DECENTRALISATION
IN HONG KONG
satisfying the needs of both co-working and institutional tenants.”
The building will be renamed Strand 50 soon.
Sunlight REIT, listed on the Hong Kong Stock Exchange since
2006, is 40% owned by Henderson Land Development Company
Limited and Lee Shau Kee’s family.
IMPROVED TRANSPORT
The recent opening of the Central-Wan Chai bypass has improved
the transportation connectivity of Island East. Supermarket
chains ALDI and WM Morrison were among the first companies
that have relocated their offices to Kowloon East, taking
advantage of the higher availability of space in the submarket.
As businesses continue to decentralise from
Hong Kong’s CBD, REIT managers are re-
branding and refurbishing their assets in the
outskirts with a focus on environment and
wellness to attract demand.
“Since last year, we have seen the relocation of many multinational
corporations and large-scale professional firms to areas such as
Wan Chai, Causeway Bay, and Island East,” says Sunlight’s Yip.
Apr
2019
K A I TA K A I R P O RT R EG I O N TA K E S O F F
Hong Kong’s decentralisation efforts aren’t focused solely on
Hong Kong island. The government is re-developing its now
defunct Kai Tak Airport located in Kowloon East. At least 42
applications have been approved and executed for wholesale
conversion or redevelopment in Kwun Tong and Kowloon
Bay under the revitalisation policy for industrial buildings,
according to the government. These industrial buildings will be
redeveloped or converted into offices, shops and services, and
hotels. About 2.6 million square metres of office floor space has
been completed.
residential assets. Units of Mirvac Group, for instance, which has
exposures to assets in urban cities, has risen nearly 32.8% for
the year to April 2019, compared to Stockland, which is down
2.3%. The ASX200 index has risen 15% so far this year. “Mirvac’s
portfolio is diversified with a high-quality office skew, so they’ve
fared fairly well; Stockland, on the other hand, has significant
exposure to retail and residential, so they’ve not performed as
well,” Morrissey pointed out.
and an expanding e-commerce sector. “Australia is also behind
other markets in internet penetration, so there could be some
ways yet before the underperformance turns,” he says.
Despite this, there are still opportunities in retail, as certain
assets are performing well. Local neighbourhood centres are
showing steady performance, and cash flows are looking quite
stable buoyed by supermarkets like Coles or Woolworths, he
adds. Larger regional centres that dominate their catchments
also look solid.
In Australia, some REITs are structured with stapled securities,
which provide investors with exposure to a combination of
assets, and they include the investment trust that has ownership
of the real estate assets and a share in the company that develops
and manages the asset base. According to Morrissey, REITs that
adopt the structure to establish an alternate platform for returns,
such as in the case of Goodman Group, have performed well due
to their exposure to offshore assets and non-rental income.
Goodman group units are up 49.3% for the year to April.
Over the past year, the strongest performing assets in the
Australian real estate industry have been industrial properties,
driven by robust demand across Sydney, Melbourne, and
Brisbane. Rental growth registered 4.1% year-on-year in the first
quarter of 2019 in Sydney, and the forward development pipeline
remains strong for the city, with 437,700 sqm of developments
under construction, or with plans approved, and due to complete
over 2019, says JLL’s first-quarter Asia Pacific Property Digest
report. According to Matthew Coleman, an analyst at APN,
capitalisation rates, or the rate of return expected for a real estate
investment property, for the industry have been compressed due
to investments by the government and eCommerce companies.
Based on JLL’s report “Australian Industrial Investment Review
& Outlook 2019,” approximately A$3.2 billion in industrial
investment sales was recorded over 2018, and the real estate
consultancy projects that Australia’s industrial investment
universe will reach A$92 billion in value by 2028.
Despite pockets of weakness, Australian real estate has
generally outperformed many other industries. The average
earnings momentum over the past year of the 11 Global Industry
Classification Standard sectors was at -1%. Among them, only
four industries had positive momentum, and these are utilities
(+0.1%), property (+1%), communication services (+2.7%) and
materials (+6.8%).
According to Morrissey, AREITs’ 2018 performance highlights
their worth in investor’s portfolios. While delivering a relatively
low 3.3%, they outperformed Australian equities (-3.1%) by 6.4%
over what was a volatile year. REITs have become a preferred
asset class in 2019 due to its high-income component and
consistency of earnings hence their 18.0% one-year return which
is 7.7% ahead of the broader Australian equity market.
MIRVAC, GOODMAN STRONG PERFORMERS
The varying performance of the different asset classes meant
that REITs that are exposed to the industrial and office sectors
have been performing better than those with retail and
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Sunlight Tower in Wanchai
An important industrial base in the heyday of Hong Kong’s
manufacturing industries in the 70s and 80s, the relocation of the
airport to Chek Lap Kok in 1998 and Hong Kong’s manufacturing
base to the Mainland led to a vast stock of industrial buildings not
being fully utilised.
The Havest in Mongkok
CENTRAL IS STILL THRIVING
Office decentralisation has gained momentum in Hong Kong
as professional services companies, including banks and law
firms, no longer see areas such as Hong Kong East as back-
office locations. With improved transportation infrastructure,
accessibility, lower rent, and advanced technology, the tenant
profiles in the decentralised zones are increasingly aligned with
those in Central Hong Kong. Meanwhile, co-working operators
are adding to demand growth.
Despite the move, Central, the thriving heart of Hong Kong’s
CBD, maintains its popularity among client-facing offices and
Chinese corporations. While rental growth has slowed due to
weaker demand from mainland Chinese industries, vacancy rate
has remained low as supply is also limited.
“For investment property portfolios to remain competitive, it
is important to ensure that investment property portfolios are
diversified across both core business district and decentralised
locations, and they should also show potential for stable organic
growth on rental income,” says Patrick Ma, Director of Listed
Products and Research at Admiral Investment Limited.
“We have adopted a proactive leasing strategy and devoted
considerable effort in executing asset enhancement initiatives,
revitalising and upgrading the buildings to facilitate and maintain
their attractiveness to tenants,” says Henderson Sunlight
Asset Management’s General Manager of Investment and
Investor Relations, Vivian Yip. “As we capitalise on this trend
of decentralisation, we are dedicating substantial resources
to revamp our second-largest office property, Bonham Trade
Centre, in west Hong Kong, to become an attractive destination
With Hong Kong’s geographical advantage as a gateway to
mainland China and its talented workforce, office demand and
rent will continue to rise, and so decentralisation will broaden
further, says Ma.
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