Retail rents endure biggest fall in 21 years; office rents and investment volume also decline
CBRE Q3 2019 Highlights
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Retail |
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Industrial |
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Investment - The U.S.-China trade conflict and local social unrest continued to dampen real estate investment activity in Q3 2019. Investment turnover fell by 44% q-o-q to HK$12.4 billion, the lowest quarterly total recorded since Q2 2016. - Chinese buyers did not complete any acquisitions, marking the first time they have been absent from the market since Q4 2009. Domestic investors accounted for the bulk of purchasing activity. - Industrial property investment was relatively resilient but less than ten deals were completed, the lowest number since Q2 2016. However, transaction volume totalled HK$4.3 billion, an improvement of 14% q-o-q over the previous quarter. - Demand for and capital values of industrial premises will remain relatively resilient backed by positive carry and the reintroduction of the industrial building revitalisation scheme. Commentaries
Office Alan Lok, Executive Director, Advisory & Transaction Services – Office Services, CBRE: Hong Kong’s Grade A office leasing momentum slowed more apparently in Q3 2019. Limited sources of demand, coupled with rising availability, is set to exert downward pressure on overall rents over the next 12 months. While Tier I buildings in Central are expected to lead the rental fall, given the rental gap between non-core areas and the CBD, decentralization remains an attractive option for many occupiers. Hong Kong East particularly is expected to remain sought after by Hong Kong Island tenants who want to upgrade their office premises with lower rents. Therefore, rents in Hong Kong East will likely edge up further despite overall market sentiment.
Retail Lawrence Wan, Senior Director, Advisory & Transaction Services – Retail, CBRE: Unlike the Occupy Central protests in 2014, the recent turmoil had a far greater impact on retailers and landlords as the protests widespread across various districts. If the current social unrest continue, the retail market is likely to suffer from a prolonged downturn. Given the present dynamics influencing the market, short-term leases and pop up stores will remain the main source of leasing activity and retailtainment-oriented outlets such as cinemas and healthcare providers could seize opportunities to lease large spaces in desirable locations in the coming months.
Industrial Samuel Lai, Senior Director, Advisory & Transaction Services – Industrial, CBRE: It was a quiet period for industrial real estate investment, with less than ten deals worth over HK$77 million completed, while investors tended to focus on assets with revitalization potential. As for leasing market, the momentum continued to slow in Q3 2019 as occupiers retained the wait-and-see approach. The lack of major new supply until 2021, coupled with the withdrawal of ageing stock under the industrial revitalization scheme 2.0 will ensure vacancy remains tight. Demands for data centers, as well as temperature-controlled warehouses for healthcare products and food and beverages remain resilient due to good industry performance while warehouse rents are expected to be stable because of festive demands.
Investment Reeves Yan, Executive Director, Capital Markets, CBRE: Geopolitical tension and local social unrest will continue to negatively affect investment sentiment in the coming months. Some Chinese buyers consider to offload assets, particularly strata-titled properties and offices, to replenish liquidity for their main businesses while affluent local investors and institutional funds are eyeing potential distressed opportunities ahead of upcoming low office supply period. The low investment yield across all property sectors will encourage investors to seek value-added opportunities instead of core assets. En-bloc office buildings and industrial premises are expected to outperform. |
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