According to JLL's Macau Mid-Year Property Review and Forecast, which was released today, the Macau property market continued to consolidate in 1H16, albeit at a slower pace, as the city's gaming income fell for the 25th consecutive month. copany
In June 2016, Macau's casino income plummeted to MOP 15.88 billion, the lowest amount since 2010. The drop in Macau's gaming revenue has slowed, according to DICJ estimates, and it totaled MOP 107.8 billion for the first half of 2016, down 11.4 percent year on year. The percentage of gaming revenue generated by the mainstream market versus the entire market climbed from 36.3 percent in 1Q14 to 45.1 percent in 1Q16, while the share of gaming revenue generated by the VIP market declined by 19.3 percent y-o-y.
Macau's overall GDP was MOP 79.95 billion in the first quarter of 2016, down 13.3 percent year on year. Fixed capital formation in Macau declined by 31.4 percent y-o-y to MOP 15.12 billion in 1Q16, thanks to the completion of part of the new gaming facilities in Cotai. Private consumer expenditure was MOP 22.31 billion over the same time, down 2.3 percent year on year.
Macau's visitor arrivals totaled 12.406,000 in the first five months of 2016, down 0.8 percent year on year. Mainland Chinese visitors continued to dominate, accounting for 66.3 percent of all visitor arrivals, while Individual Traveller Scheme (ITS) travelers accounted for 46.6 percent of total Mainland Chinese visitors. In Macau, the total number of hotel rooms is 32,000, with 20,500 of those in the five-star hotel category. The cumulative occupancy rate in Cotai has dropped to 78.0 percent due to the opening of new hotels. As of May 2016, the average duration of stay for guests remained unchanged at 1.4 nights.
In the first half of 2016, the job market in Macau remained relatively stable. According to the DSEC, the unemployment rate remained low in May, at 1.9 percent. In 1Q16, the national median monthly income stayed at MOP 15,000, which was unchanged from the previous quarter. Total resident deposits declined by 6.2 percent y-o-y to MOP 451 billion in April 2016. As of the end of May, the number of imported workers in Macau had hit a new high of 182,344 people, up 1.6 percent year on year. With several gaming facilities set to open in the first half of 2016 or after 2016, the number of imported workers is projected to continue to rise, albeit at a slower pace.
"Despite the fact that Macau's economic indicators grew at a negative pace in the first half of 2016, the decline has been slowed, and the city's economic fundamentals remain strong. We expect the property market in Macau to improve in the second half of 2016, notwithstanding the economic transformation "JLL Macau's Head of Residential, Jeff Wong, stated.
Office Market in Macau
Due to negative investment sentiment and cost-cutting initiatives followed by several corporations, the office market in Macau continued to slow in 1H16. The total number of new incorporations registered in Macau for the first four months of 2016 was just 1,476, a decrease of 29.3% year on year. In fact, most industries saw a significant drop in the number of newly registered businesses.
Due to a sharp drop in demand from offshore enterprises and gaming-related operators, the total office leasing market had negative growth in the first half of 2016. However, despite the negative market mood, some foreign insurance companies were willing to commit to larger office space for expansion. In the first half of 2016, rental values in the general office market and the Grade A office market declined by 20.3 percent and 14.5 percent, respectively, year over year.
In the first half of 2016, capital values for the total office market and Grade A office market fell by 25.1 percent and 24.4 percent, respectively, on a year-over-year basis. As of the end of June 2016, the overall office vacancy rate had risen to over 8%, but office supply had remained low. The total office market and Grade A office market investment yields both increased to 2.7 percent and 2.6 percent, respectively.
"We expect several gaming operators to relocate their activities from existing offices to the new projects as many big gaming facilities are built in 2H16. This could result in an increase in the number of vacant offices. Currently, the market is in favor of tenants, and they have more bargaining power. Some businesses may consider improving their workspace by committing to a larger area at a lower leasing rate "Alison Yip, Associate Director, Capital Markets at JLL Macau, expressed her thoughts.
Macau's Retail Industry
According to DSEC data, total retail sales in 1Q16 declined by 11.2 percent y-o-y to MOP 14.73 billion. Motor cars and motorbikes experienced the greatest drop. Retail sales of leather goods, watches, clocks, and jewelry declined by 6.2 percent and 18.3 percent year over year in 1Q16, respectively, while cosmetics climbed by 8.4 percent.
Retailers specializing on high-end merchandise were the hardest hit. Some landlords became more accommodating in rental talks and were willing to provide renters with a significant rate discount. Meanwhile, the leasing industry was dominated by cosmetics and sportswear merchants. In the first half of 2016, overall retail rental declined by 18.6%, however there was one major retail leasing transaction: an international fashion business leased a standalone property in Largo do Senado for HKD 1.3 million per month.
In the first half of 2016, there were two notable sales deals. A G/F store unit in Avenida do Infante D. Henrique was sold for HKD 350 million, while a standalone commercial property in Largo do Senado was sold for HKD 300 million, according to Bossini. Shun Tak Holdings sold a 50% interest in the shopping mall in Nova City Phase 5 in Taipa to a wholly owned subsidiary of ADIA for HKD 3.15 billion during the same period. For the development of this project, the two parties would form a joint venture. The entire retail capital values in 1H16 fell by 23.6 percent y-o-y, according to the JLL Macau Retail Index.