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Macau's commercial boom

‘‘Simon Henry, CEO of www.vproperty.mo notes that “Business is good for the commercial market in Macau, as it’s not dependent on a large financial industry”’’

As the economy continues to prosper in Macau, underpinned by the booming tourist sector, surging gaming revenues and the low interest rate environment, the region’s commercial market is also rapidly taking off. Consider that during the first six months of 2008, capital values and rents for Grade A office space increased by 13.6 percent and 3 percent, respectively.

“With more mega resorts coming in the next two to three years, there will be an increasing number of retailers and business services sector tenants setting up operations in Macau. This, combined with the tight availability of Grade A office space, will help capital values and rents to remain on the rise,” says Gregory Ku, Managing Director of Jones Lang LaSalle Macau.

Simon Henry, CEO of www.vproperty.mo, an online property portal dealing exclusively with commercial and residential properties in Macau, echoes Ku’s sentiments. “Business is good for the commercial market, as it’s not dependent on a large financial industry,” he says. “What’s more, the commercial sector in Macau is cyclical; you’ll find that when a new casino or other business opens, the amount of office space availability decreases dramatically.”

Henry also points out that no new commercial buildings are due to come on stream in the next three years. “Demand for Grade A buildings is high and few are available,” he says. “However, there is a good supply of Grade B and C buildings, and many are currently being upgraded, which is a more cost-effective solution for many businesses.”

While Macau is short on land like neighbouring Hong Kong, Henry says its commercial market is totally different. “We’ve only got around ten what you’d consider Grade A buildings, and they’d probably be classified as B buildings in Hong Kong,” he says. “Moreover, rentals here are about a quarter of what they are on Hong Kong Island.” However, prices are going up. Henry estimates there has been around a 10 percent to 20 percent increase over the last 12 months, both in retail and office space, depending on the location and the condition of the property.

The influx of casinos has naturally had a big impact on the commercial sector, and now dictates its pace. “Take the City of Dreams [an underwater-themed casino and entertainment resort, featuring four luxurious hotels, including the Hard Rock, Grand Hyatt, Hyatt Regency and the Crown Towers], due to open in July next year, which will employ 12,000 people. The administration of the complex will require significant office allocation so this will place increasing pressure on current stock availability.”

There are two commercial districts in Macau - Central, which is close to the ferry terminals, and NAPE, an area of reclaimed land around the causeway. “Rentals in the Central commercial district are about HK$7 per square foot per month, but in the AIA Building and the FIT Centre [an upscale new tower that opened around four months ago with 163 office units], they are more like HK$12 per square foot or HK$22 per square foot. Both areas are currently running at around 80 percent to 85 percent,” Henry says, adding that another new commercial development, 39 Macau, is also doing well.

Commercial properties currently available for sale include the Chong Fok Building, where a 2,000-square-foot space is selling for HK$2.9 million, and a 7,757-square-foot office in the Tong Nam Ah Building which comes in at HK$16.3 million. Both are located in Macau’s Central district.

Mixed retail properties such as Hong Kong Land’s ultra-luxe One Central, which combines retail with residential and hotel facilities, are also proving popular in Macau. Another big retail project due to open soon, Studio City on the Cotai Strip, is bringing more top retailers to the region, as has the newly opened DFS Galleria, located inside the Four Seasons Hotel.

“Two-thirds of our properties are retail spaces,” says Henry. “If you walk anywhere in Macau, all the ground floor is retail space, and as the city gets 25 million visitors a year, that’s a lot of traffic going past.” Many of the gamers have come to make expensive purchases too; this is evident by the huge range of luxury goods and international brand names on sale within walking distance of the tables.

Can Macau’s commercial sector ever catch up with Hong Kong? Henry doesn’t think so. “Hong Kong, London and New York, they are the three mega cities, and Macau doesn’t have the big banks, or the stock exchange, that these cities have. Macau will remain as it is, a touristy casino town just like the Gold Coast in Australia. It will continue to lead the region as a tourist destination with the draw cards being casinos, shows and events.”

As casinos continue to expand their attractions, and as the tourist industry matures, the prospects for Macau’s commercial property moving forward remain strong.