Real estate markets in Hong Kong and mainland China have begun to bounce back from the trauma of the COVID-19 pandemic, and that rebound is helping to drive encouraging results for one of the region’s largest commercial developers.
Swire Properties said today that its profit attributable to shareholders for the first six months of 2021 was HK$1.98 billion ($255 million), a figure that was up 49 percent from the HK$1.03 billion achieved during the same period last year.
“Overall, there are signs that the economic recovery will maintain its momentum, which gives us greater optimism about the second half of 2021 and beyond,” said Swire Properties chief executive Guy Bradley. With the company veteran set to take over the chairman role on 25 August, he added that, “We are well positioned to continue our growth strategy in core markets,” while pointing to encouraging prospects for commercial leasing in Hong Kong and mainland China.
Helped along by sales of investment properties, such as a portfolio of car parking slots at the company’s home base in Taikoo Place, Swire saw revenue jump 38 percent during the January to June period to reach more than HK$9 billion.
Mainland Shoppers Return
“As COVID-19 began to ease, we expected to and did see some improvement in our business in the first half of 2021,” Bradley noted. “The retail business in the Chinese Mainland in particular gained ground.” However, he cautioned that significant challenges remain.
Recurring profit inched upward to HK$3.72 billion during the period, from HK$3.70 billion in the first half of 2020, with the company attributing the improvement primarily to stronger retail sales in mainland China, where it operates shopping centres in Beijing, Shanghai, Guangzhou and Chengdu.
Outgoing chairman Merlin Swire said, “Sales growth at Taikoo Hui in Guangzhou has been particularly robust, with sales almost doubling between the first halves of 2020 and 2021.” The Swire scion, who will continue to helm the family’s private holding firm John Swire and Sons, attributed the retail success to the company’s placemaking strategy.
New Projects on the Way
Later this year, Swire will introduce one more mainland shopping centre when it opens the Taikoo Li Qiantan project in Shanghai’s Pudong district. It also plans to open an extension of its Taikoo Li project in Beijing during 2021.
Just last month, Swire announced new retail-centred urban regeneration projects along Shanghai’s West Nanjing Road and in Beijing’s Chaoyang district.
The company said office demand in Beijing and Shanghai is expected to improve, but it cautioned that a glut of new supply in city fringe areas would keep pressure on rental rates.
After selling the CityPlaza One office project to a Manulife-backed consortium led by Gaw Capital Partners and Schroders for $1.27 billion late last year, Swire Properties’ gross rental revenue from its office portfolio during the first six months of 2021 fell to HK$3.1 billion from HK$3.3 billion a year ago.
Rental income from its retail portfolio rose to HK$2.9 billion from HK$2.5 billion during the first six months of 2020, as the lifting of coronavirus restrictions brought life back to its high-end shopping malls such as Taikoo Li in Beijing and Pacific Place in Hong Kong.
Weak Demand, Strong Activity
In Hong Kong, the company brought in gross rental income of HK$3.0 billion from its 9 million square feet (836,000 square metres) of office space, while characterising the market as weak. Disregarding the impact of the sale of the CityPlaza One project, gross rental income was down 2 percent compared with the first six months of 2020.
“In Hong Kong, our office portfolio remained resilient, despite the weak market, with high occupancies and stable rents,” Bradley said. In its report, Swire pointed to Swiss bank Julius Baer having agreed during the period to take up 92,000 square feet in Two Taikoo Place, which is still under construction in Quarry Bay.
The 200-year-old company’s commercial property base on eastern Hong Kong island, where it once built ships and refined sugar, has been producing new value in 2021.
During the first six months of this year, office rental rates on leases signed in Swire’s Taikoo Place complex in Quarry Bay rose 2 percent compared with the same period of 2020, with those rates up 10 percent at the company’s high-end One Taikoo Place and One Island East properties.
In comparison, rental rates on office leases signed at Pacific Place in Admiralty, part of Hong Kong’s traditional commercial core, fell by 11 percent during the first half of this year compared with the same six months in 2020.