According to JLL’s Macau Mid-year Property Review 2020, all property sub-sectors in Macau have been impacted with retail and hotel industries facing the biggest hit. The retail and hotel properties located in the periphery of tourist areas will see consolidations and adjustments while residential and office properties that rely more on domestic demand will be relatively more resilient.
"The COVID-19 pandemic has created a lot of volatility and uncertainty to the global economy, undermining investors' confidence, and the situation will unlikely improve until the pandemic is under control. Currently, the epidemic is basically under control in Macau. With the city's accumulated wealth and the government's economic revival measures, as well as China's easing of border restrictions between Guangdong and Macau, we believe Macau's property market can maintain its resilience in 2H20. However, if the epidemic continues to be unstable around the peripheral areas in the future, the economy will face challenges again and the property market may enter a new phase of the downward cycle," says Mark Wong, Director of Valuation Advisory Services at JLL Macau.
Macau's Office Market
With the government's anti-epidemic subsidy schemes, most of the companies have been able to survive. The office market was relatively more resilient in 1H20. In the first five months of 2020, a total of 1,923 new incorporations registered in Macau, down 32.7% y-o-y, while the number of companies in dissolution was 274, down 23.7% y-o-y.
"As tourist-dependent retailers are considering contracting the sizes of their offices or relocating to premises that offer lower rentals to reduce operation costs, Grade A office market will face a relatively direct impact. The COVID-19 pandemic has been under control in Macau and people have been back to normal to work in the office. However, the work-from-home experience has changed the corporates' thinking about office design and way of work and created a gap for flex office space development in the city. In fact, corporates can consider deploying flexible office leasing strategy to respond to future business needs to achieve a win-win of better user experience and lower operation costs," says Oliver Tong, Head of Leasing at JLL Macau.
The Retail Market
According to JLL Macau Retail Index, the overall retail rental values fell by 17.5% while overall retail capital values declined by 21.3% in 1H20 from the end of 2019. The overall retail yields maintained at around 1.8% as of the end of June 2020.
"Retail and tourist sectors were the most badly hit by the COVID-19 pandemic. The retail property sector saw a dramatic adjustment and even with China's easing of border restrictions, the retail industry won't be back to its pre-pandemic status shortly. During the past few months, we did a survey with over 500 retailers from different trades aiming at understanding their future business plans. Among the respondents, only about 20% mentioned that they would continue their business expansion in the short term. The rest, in general, stated that they would consolidate their business and adopt cost control strategies, expecting to take at least a year for business recovery," says Oliver Tong.
"As part of the overall economic revival measures, the Macau government introduced a series of incentives such as Consumption Subsidy Plan and Macao Ready Go! to help corporates whether economic hardship by stimulating local consumption spending. In fact, local people command an impressive level of consumption power that is non-negligible especially when the city is suffering from an economic recession. Lifestyle, F&B, and leisure entertainment will become the focus in the future, and the retail sector is expected to experience a U-shape rebound." adds Tong.