Worsening US-China trade war hits Hong Kong's office rental market as companies put expansion plans on hold

By Sandy Li sandy.li@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3012780/worsening-us-china-trade-war-hits-hong-kongs-office-rental?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | June 7, 2019 12:04 PM SGT
The worsening US-China trade war, which continues to depress stock markets and the economy, is affecting Hong Kong's office leasing market, as a growing number of companies are holding back their expansion or relocation plans, say market observers.
Hedge funds, asset management companies and foreign trading firms are taking a wait-and-see approach.
Hong Kong's benchmark Hang Seng Index lost 9.42 per cent of its value last month after the US escalated the trade war by announcing an increase in tariffs from 10 per cent to 25 per cent on US$200 billion worth of Chinese goods on May 10. China then raised tariffs on US$60 billion worth of US goods by the same level, which came into effect on June 1.
The trade war caused China's manufacturing purchasing managers' index to fall further in May, suggesting the economy is continuing to slow. The PMI fell to 49.4 last month, down from 50.1 in April " much below the median expectations of 49.9 in a poll of Bloomberg analysts.
"A number of corporates are taking a more conservative approach and are postponing commitments " particularly related to relocation," said Chris Currie, executive director and head of Hong Kong office services at Colliers International.
He said the costs associated with relocation to other areas in the city even when downsizing could be much more than renewal in most cases.
"In such cases renewal is often the preferred strategy," Currie said.
Data from Midland IC&I released on Sunday showed that the number of grade A office transactions dropped 32 per cent in May as investors stayed on the sidelines. At least half of the 15 deals completed last month were sealed before the trade tensions spiked up.
Wendy Lau, senior director of Hong Kong office services at Knight Frank, said medium sized foreign firms were also being cautious, putting their expansion plan on hold until the trade dispute is settled.
She said that the trend of mainland firms surrendering their office space a few months ago...