Property

Macao Retail Property Market Outlook

Macao’s tourism industry has been hit hard by China’s anti-corruption campaign since mid-2014. Although the number of total visitors has only fallen slightly by 2.6% in 2015, with number of visitors remaining at around 30 million, the shrink in the proportion of high-value visitors has reduced total visitor spending (not including gambling revenue) by 17%, severely hitting the retail sector. The retail property market, as a result, has become unusually quiet in 2015, with total transaction volume dropping by 30% and the number of transactions falling by nearly 50%.

The revenue of some of the pawnshops and high-end retail shops in the Zona Nova de Aterros do Porto Exterior (NAPE) area has been greatly hampered since the decline of the gambling industry. With stores moving out, many empty shops have been sighted, with around 130 shops in the area currently on the market looking for a new tenant.

To retain tenants, shop owners have been giving great discounts on rent. For example, the highest recorded monthly rent during the peak in 2014 for a shop of Warlorly Building in the Western side of the NAPE area was around MOP 250 per sq ft of GFA. Yet, the recent asking price has already fallen to around MOP 100 per sq ft, representing a staggering 60% decrease in rent. Reductions, ranging from 30% to 50%, have also been seen in other core retail districts, with greater discounts given for larger shops. On the other hand, less reduction was seen in the rental market of shops in residential areas, such as Taipa, the Horta e Costa District and the Northern district, with reductions ranging from 20% - 30%.

One of the most significant retail property transactions reported recently would be the Bossini shop on Avenida do Infante D. Henrique. The street shop, together with a basement and a cockloft, has a total GFA of around 4,290 sq ft and was recently sold for MOP 350 million, or MOP 81,600 per sq ft. The vendor has agreed to lease back the property for 3 years at a monthly rent of MOP 1 million, or MOP 233 per sq ft, after the transaction.

Both the transaction price and the agreed monthly rent are deemed to be higher than the current market price. Yet, as transactions of such prime properties are generally quite rare, few references can be obtained from the market. Moreover, as a lease-back agreement follows the transaction, it is more likely that both the transaction price and the lease-back rent has been considered during the negotiation of the transaction.

Despite the gloomy outlook in Macao’s retail industry, with rent having fallen around 30%-40% in general in 2015, the margin for any further discounts has become quite small. Another 10% of rent reduction is therefore expected to be seen in 2016.