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News Release

Hong Kong and Macau

JLL Macau: Robust Residential and Office Markets amid Strong Demand and Limited Supply

From left to right: Alvin Mak, Associate Director, Research, Jeff Wong, Head of Residential and Alison Yip, Associate Director, Agency


Hong kong and Macau, 10 July 2014 – Macau's economy remained robust in 1H14, with all economic indicators increasing significantly and the unemployment rate recording a negative growth.  Coupled with the strong demand from expatriates for residential properties and the limited office supply, these two sectors—especially the office market—recorded very strong growth, according to JLL in its Macau Mid-year Property Review today.

With the Central Government's anti-corruption campaigns and the tightening control over capital outflow along with the cut in the length of stay for mainlanders on their transit visas, Macau's gaming sector was hit to a certain extent in 2Q. According to the DICJ figures, the city's gaming revenue rose by 19.8% and 5.5% to MOP 102.2 billion and MOP 90.89 billion, respectively, in 1Q and 2Q.  In June, Macau's gaming revenue recorded a negative growth at 3.7%, the first time since 2009. Despite the contracted growth in 2Q, we believe it is too early to say whether Macau's gaming revenue has entered a downward track.

The US Federal Reserve expressed, during the Federal Open Market Committee (FOMC) meeting in April, no immediate need for raising the interest rates. Some investment banks forecast that an interest rate hike may be seen in 2H15 or 2016. However, as mortgage rates in Macau have already reached historic low, we don't expect to see a significant impact to the city's real estate market if the external interest rate hike is between 2-3%.

All the economic indicators in Macau recorded growth in 1Q14.  Macau's GDP maintained its growth momentum and rose by 12.4% y-o-y. Underpinned by the construction of several massive projects, Macau's gross fixed capital formation continued to grow by 30.9% y-o-y.  Private consumption expenditure increased by 4.7% y-o-y.

Macau's total visitor arrivals were recorded at over 12.85 million in the first five months of 2014, up 8.7% y-o-y.  The labour market continued to improve, with the unemployment rate declining to 1.7% in May, a negative growth of 0.1%.  The overall median monthly income further increased to MOP 13,000 in 1Q14, up 8.3% y-o-y.

Alvin Mak, Associate Director, Research at JLL Macau, said, "Macau's government officials went to Beijing in June for talks with mainland officials on how to fine-tune the Individual Travellers Scheme. We believe that Macau's tourist and retail sectors will be benefitted with the improved travellers scheme as it will bring more quality visitors to the city."

"Though Macau's gaming sector may see a consolidation in 2H14, currently in Cotai there are several large-scale projects under construction that will be put into operation in the coming years. This can help underpin Macau's economy, and we expect the city's real estate sector continues to grow steadily," added Mak.



The transaction volume of Macau's residential sector remained at the low level in 1H14.  According to the DSEC statistics, a total of 3,743 residential transactions were registered during the period, from January to May this year, dramatically down 45.4% y-o-y. This downward trend was mainly attributable to the limited secondary supply as a result of the special stamp duty (SSD).  On the other hand, new supply was very limited while some owners were too aggressive with their asking prices.

A few projects for sale were launched in 1H14, including. The Residencia Macau in Pearl District, The Carat in NAPE and La LA BAHIA NO.1 in Nam Van Lake Area.

Notwithstanding the quiet market, in 1H14, capital values rose strongly by 25.5% in the high-end residential sector and 23.4% in the mass and medium sector, according to JLL Macau's High-end Residential Index.

Driven by the influx of expatriate workers, the leasing market remained active with the growing leasing demand.  According to the DSEC statistics, the number of non-resident workers in Macau reached 152,299 as of end-May 2014, a significant increase of 14,461 from end-2013. The leasing demand mainly focused on mass and medium properties. In 1H14, the high-end residential rents rose by 7.1%, while mass and medium residential rents rose by 12.3%. 

Jeff Wong, Head of Residential at JLL Macau, said, "According to the figures announced by the Land, Public Works and Transport Bureau of Macau, a total of 625 newly completed units were granted occupation permits in 1Q, while over 1,700 units were built and under inspection. However, most of these units were already sold as presale flats a few years before. In fact, most of the 14,025 units that were under construction in 1Q had been absorbed by the market as pre-sale flats. According to our in-house statistics, on average, there will be about 2,700 new units completed each year from 2014 to 2016. It is believed that the new supply is inadequate to meet the strong leasing demand from the expatriate workers."

"With the new gaming facilities in Cotai completed next year, we expect to see a more active residential market.  There is still gap for residential rental growth," added Wong.




In 1H14, Macau's office sector was the most robust among all property sectors. A total of 1,165 new incorporations were registered in 1Q14, up 21.4% y-o-y. 

In the sales market, the NAPE area was the most active. The transaction prices of the office space in the area were high—close to HKD 10,000 per sq ft. On the back of the tight supply and the abundant investment capital, the office capital values surged dramatically by 44.1% in 1H14, according to JLL Macau's Office Index.

In the leasing market, office rentals saw a very significant growth in 1H14. According to JLL Macau's Office Index, the overall office rentals rose by 20% q-o-q and nearly 60% y-o-y in 2Q. The Grade A office rentals in Nam Van district recorded the strongest growth, with office space being leased at HKD 30 per sq ft. The office rental yield was around 2–2.5%.

Office supply was highly limited in Macau, with vacancy rate recorded at only about 5% in end-June 2014. It is hoped that the neighbouring city Hengqin can bring in more new supply in the coming years and alleviate the demand–supply imbalance in Macau.

The number of new incorporations registered in Macau remained at a high level.  Out of which companies from the wholesale and retail sector made up 40%, while those from the finance, industrial and commercial services industry comprised 25%.

"The development in Cotai prompted some companies—from the retail, construction, hotel and gaming industries alike—to expand their businesses and, at the same time, open their back offices and operation centres, leading to a stronger office leasing demand. Recently, some companies moved out from office buildings and leased spaces in factory buildings at monthly rentals of about HKD 8–10 per sq ft to save costs," Alison Yip, Associate Director, Agency at JLL Macau, remarked.

"On the back of the limited supply and strong demand, there will be only one new office building in Nam Van Lake district available for lease in 2H14. We expect office capital values and rental values in Macau to remain on an uptrend for the remainder of 2014," Yip commented further.



Macau's retail sector continued to be active, with retail sales rising by 15.3% y-o-y to MOP 18.3 billion in 1Q. Both retail capital values and rental values recorded growth in 1H14.

In the sales market, the retail property prices continued to rise. According to JLL Macau's Retail Index, the overall retail capital values rose by about 12% y-o-y in 1H14. During the same period, the capital values for retail properties in Taipa saw an even larger increase at almost 20%. For high street shops, landlords tended to be very aggressive with their asking prices, while buyers adopted a wait-and-see attitude. The second-tier shops segment was more active, with buyers being more focused on street shops located outside the tourist spots and worth around HKD 30 million.

For the leasing market, the overall retail rentals recorded a 7.4% y-o-y growth in 2Q14. Among the different districts, the retail rentals in S. Domingos and S. Paulo areas saw the strongest growth. The market was dominated by retailers from the jewellery, leather goods and cosmetics trades.  In 1H14, three new retailers took up shop space in Rua de S. Domingos at monthly rentals from about HKD 600,000 to HKD 1.1 million to open their outlets. In the tourist districts, because of the limited supply of shop space and the high rental levels, some retailers with lower affordability, such as F&B operators, were forced to move out to areas with lower rentals. In some cases, retailers opted to relocate to office buildings' shopping centres, e.g., Circle Square.

Yip commented, "Retail rentals remained broadly stable in 1H14 and grew at a relatively moderate pace as compared with the past few years. We expect the improvement of the Individual Travellers' Scheme will especially benefit the medium-to-high-end retailers, as it can enhance the quality of mainland visitors. Even if Macau's visitor arrivals remain stable at the current level, it is unlikely to cause an impact to the retail sector. Macau's retail capital values and rentals are expected to be relatively stable in 2H14."