Hong Kong topped the list for commercial property transactions in Asia in the first nine months of this year, but deals started to slow down in the third quarter as investors weighed the impact of the US-China trade war, rising interest rates and lower yields, according to a report from data provider Real Capital Analytics.
Transaction volume in the third quarter stood at US$3.1 billion in Hong Kong, nearly 25 per cent lower than the US$4.1 billion in the same period last year.
Overall commercial deals in the city jumped 65 per cent to US$22.99 billion in the first nine months of this year from US$13.95 billion a year earlier, according to the report.
Office property transactions in particular surged 169 per cent to US$13.59 billion in the first nine months.
“For the past decade the Asia-Pacific real estate investment market has been characterised by rising prices enabling capital gains for most players,” said Petra Blazkova, senior director for Asia-Pacific at Real Capital Analytics. “[But] Hong Kong’s mega deals of the past appear to be giving way to a plateauing market. This is not surprising after an astonishingly strong run.”
The report also noted a weaker pipeline of transactions, with only US$6.8 billion of transactions pending in the final three months of the year in Hong Kong.
“With property yields at historic lows and tighter financing conditions looming … activity seems to be shifting into a lower gear as investors determine whether the next stage of the investment cycle is on the horizon,” said Blazkova.
The most notable office deals involved The Center, the city’s fifth tallest tower. For instance, veteran investor Lo Man-tuen sold one and half floors, or 37,000 square feet, of the iconic building in Central to mainland developer Yuzhou Properties for US$229.5 million in July.
Consultancy CBRE echoed the view that overall investment activity in the third quarter had suffered because of the escalating US-China trade war.
“China saw relatively subdued investment activity as demand from domestic capital continued to be influenced by economic deleveraging,” according to a CBRE report led by Henry Chin, Asia-Pacific head of research. “Investors in Hong Kong were [also] cautious amid the wider expectation gap between buyers and sellers and the limited availability of investible assets.”
CBRE noted that investment activity in Hong Kong is set to slow as en-bloc saleable stock remains limited and strata-titled sales will drive the market.
The slowdown in investment activity is likely to persist under negative global market outlook, leading to a minor price correction, said John Siu, managing director of Cushman & Wakefield.
“An ease in the US-China trade war in the short-term is unlikely and the path of Brexit is also unclear. Coupled with rising interest rates, the investment sentiment has been dampened,” said Siu. “Unless the headwinds are improved, the turnover will see [downward] adjustment. Some impatient investors may then sell properties [at a discount], leading to a price correction in some cases.”