Conditions deteriorate amid more pessimistic outlook for global growth
Respondents to the Asia Pacific Commercial Property Monitor indicated that conditions deteriorated significantly during the third quarter of 2019.
Participants in the Q3 2019 RICS Hong Kong Commercial Property Monitor highlight a significant deterioration in conditions over the past three months.
The bulk of this has been attributed to the ongoing political unrest in the city, though some was also assigned to the ongoing US-China trade dispute.
The Occupier and Investor Sentiment Indices, composite measures of market momentum, fell to -45 and -47 respectively. These are the weakest readings seen since the Global Financial Crisis (GFC), and indicate a major deterioration in conditions. Several metrics fell at a pace not seen since the GFC, including occupier demand and investment demand.
Against this backdrop, and perhaps unsurprisingly, both rents and capital values are expected to contract over the next three months.
In net balance terms, all three sectors (office, industrial, retail) are expected to see valuations fall in the near-term, with expectations also negative at the 12-month horizon.
Rents and capital values are expected to fall across all sectors and property types, retail (both prime and secondary) is likely to be especially hard hit. Retail rents are seen falling more than 10% over the next 12 months, while capital values are expected to decline almost 10% during the same period.
Around 75% of respondents now see the Hong Kong market as being in a downturn, this is up from a share of 42% who took this view in Q2. This comes as a majority of contributors see valuations as being above fair value to some degree (58%), while access to credit is reportedly deteriorating.
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Senior Economist, Asia Pacific
Sean is responsible for the RICS Economics team’s research into the Asia-Pacific property sector, identifying market risks to the sector and analysing economic events and their effects on real estate.