Hong Kong’s Q3 Commercial Property Investments Fell To Second-Lowest Level In Six Years

Fog of uncertainty expected to cloud investment activity in the remaining months of 2019 and into 2020

 

By Reed Hatcher

Cushman & Wakefield Director and Head of Research For Hong Kong

Investment into Hong Kong’s commercial property market, both in terms of investment volume and number of transactions, fell to the second lowest level in six years in Q3 (slightly above Q1) as all major players, including previously-active PERE funds, increasingly moved to the sidelines amid market uncertainties.

Total investment volume of properties over HKD 100 million each fell 77.0% q-o-q and 64.9% y-o-y to HKD 5.94 billion. This represents approximately 23% of the five-year historical quarterly average of HKD 25.68 billion. In terms of the number of transactions, only 18 were concluded in the quarter, representing a 47.1% q-o-q and 50.0% y-o-y decline.

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A lack of major en-bloc office transactions and slowdown in strata-title sales saw investment in the office sector dropping by 92.5% q-o-q and 73.8% y-o-y to HKD 1.62 billion in Q3. Among the most notable, SOCAM Development sold 93 Wai Yip Street in Kwun Tong to an investor for HKD 387.0 million (HKD 13,900 per sq ft).

In contrast, investment volumes into industrial property picked up slightly, up by 15.8% q-o-q, to HKD 2.39 billion. The increase was supported by an en-bloc transaction as a local investor agreed to purchase Central Industrial Building in Kwai Chung from a joint venture between Hanison Construction and China Merchants Capital for HKD 1.08 billion (HKD 3,890 per sq ft). The building has been approved by the government for redevelopment into an industrial-office building (283,500 sq ft) with a 20% increase of plot ratio under the current Industrial Refurbishment Scheme 2.0.

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The outlook for investment in commercial property in Hong Kong is likely to remain muted over the remainder of the year. While there is the possibility that a single sizable transaction could push investment volumes higher in Q4 from the record low last quarter, investors are likely to largely remain on the sidelines.

As sentiment in the office market has soured considerably in Q3 and with no end yet in sight to the current instability, rents across all sub-markets will come under increasing pressure over the remaining months of this year and into 2020. Hence, conditions for underwriting deals has become challenging for foreign PERE funds. Meanwhile, mainland Chinese investors have also been quiet due to recent softening of the Renminbi.

Investment activity is expected to remain limited in coming months under the current fog of uncertainty though increasing pressure on prices may begin to create sporadic buying opportunities for those confident in Hong Kong over the long term. 

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