Hong Kong investment sentiment subdued in Q2

11 July 2019

• Recent domestic and overseas uncertainties have hit transaction volumes hard
• Office tenants backed off from the sales market
• The retail market focused on suburban retail with sales holding up well

Hong Kong – 11 Jul 2019 Prominent real estate advisor Savills see recent domestic and overseas uncertainties have led to a fall in both transaction volumes and values. The few office transactions recorded over Q2 were driven by bargain-hunting veteran investors and end users. The core retail investment market was particularly hard hit by declining retail sales, with suburban retail remaining relatively unscathed. The firm expects the investment market to endure another bumpy ride over the next three to six months.

Hong Kong investment sentiment was subdued by the US / China trade tensions as well as the Extradition Bill and resulting unrest, with major non-residential transactions (over HK$100 million) falling by 50% YoY over the first five months of 2019. Overall non-residential transaction volumes also slumped significantly by 49% over the first four months of 2019, the worst start to a year since 2016, which saw the first interest rate hike by the US Fed.

The office sector quietened with many investors driven to bargain hunting (typically at a 10% to 15% price discount), but many landlords, who are experienced investors themselves with holding power, stood firm on asking prices. The few deals concluded were mainly purchases by end users who were determined to find their own space for occupation regardless of market conditions.

In terms of the retail sector, the decline in retail sales performance (-1.8% over the first five months of 2019), in particular key shopping items for tourists (jewellery/ watches / clocks -4.4%, Electric goods -16.6%), further dampened investment sentiment with many veteran retail investors happy to wait out the turbulence. The retail market focus was still firmly on suburban retail with sales holding up well, but for major transactions of over HK$100 million, purchasers showed greater interest elsewhere (such as industrial premises with redevelopment potential).

Mr. Simon Smith, Senior Director, Research & Consultancy commented: “The on-going US / China trade tensions, as well as the proposed Extradition Bill, have hit investment sentiment, with non-residential transaction volumes falling by half. Bargain hunting occurred in both the office and retail markets with cash-rich investors looking for distressed assets which proved hard to come by.”

Mr. Peter Yuen, Managing Director, Head of Investment & Sales said: “In Q2, we saw many office tenants who were actively looking to purchase their own premises taking a wait-and-see attitude, while some southern China industrialists whose businesses have been severely impacted by the trade war, slowed their investment into Hong Kong. However, there is still life in the investment market. With the reopening of trade negotiations between the US and China after the G20 Osaka Summit, more positive news is anticipated over the next few months.”

 
 

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