Investors shun commercial real estate as Hong Kong grapples with coronavirus impact, political fallout

By Cheryl Arcibalcheryl.arcibal@scmp.com / https://www.scmp.com/business/article/3089221/investors-shun-commercial-real-estate-hong-kong-grapples-coronavirus?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3089221 | June 23, 2020 2:41 PM SGT
Hong Kong's commercial real estate market is expected to be hobbled by uncertainty surrounding the controversial security law, with transactions already growing at the slowest pace since the global financial crisis, analysts said.
Although the impact may be short-lived, this will not help the already flagging real estate market in the city, which was setting world records for the most expensive office and retail assets within the past three years.
"It's twofold with Hong Kong. There were the political issues, and then the virus, and then back to political issues," said David Green-Morgan, managing director at RCA, which tracks deals worth at least US$10 million. "It's been a pretty rough nine months or so."
ADVERTISEMENT
This year, cross-border commercial property deals in Hong Kong have dwindled to 5 per cent of total transactions in the second quarter, the lowest since RCA began collecting data on the local market in 2007. No deal was recorded in the first quarter, making it Asia-Pacific's second least liquid market after Beijing.
SCMP Graphics
There were 19 deals involving properties valued at least HK$100 million (US$13 million), according to data compiled by property consultancy Cushman & Wakefield. It represents a 71 per cent retreat from a year earlier, with investment volumes at their lowest since the 2008 crisis.
The coronavirus pandemic, which causes the disease Covid-19, has deepened the recession in Hong Kong when the economy shrank 8.9 per cent last quarter. The current benchmarks set by The Center office tower and the Russell Street shopping belt may not be eclipsed any time soon, analysts said.
Investment activities in the city are likely to remain quiet for the rest of the year, according to private equity firms. In the short-term, at least, political considerations is likely to keep investors at bay, according to Nuveen Real Estate.
ADVERTISEMENT
"Investors [will] try to work out the risk premium needed to mitigate short-term risks while keeping an eye on the outlook of the economy," said Harry Tan, head of research for Asia-Pacific at Nuveen. "That has negatively impacted the office and retail sectors, and to a lesser extent, the housing sector."
Investors are likely to look for data centre assets in Hong Kong given its strategic proximity to mainland China.
Retail and hospitality assets, however, are likely to be shunned, given that they were already reeling from social unrest before the coronavirus pandemic further took its toll on the industry. The imposition of Hong Kong security law offers a test going forward.
ADVERTISEMENT
"The resurgence of political tension should continue to negatively impact investor sentiment going forward, particularly for retail and hospitality assets in Hong Kong," said Jonathan Hsu, head of research for Asia, M&G Real Estate.
Still, investment activities are likely to pick up if asset prices continue to fall, he added.
"Opportunistic investors, both foreign and domestic, are still actively monitoring the market pricing for potential price dislocations and discounts," Hsu said. "Liquidity in the Hong Kong market depends on how quickly real estate prices adjust."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.