As discontent over the government’s extradition bill roiled the Hong Kong economy, and with mainland authorities keeping a tight clamp on cash, commercial real estate transaction volume fell over 42 percent in Hong Kong during the second quarter of this year, compared to the same period in 2018, according to market data provider Real Capital Analytics (RCA).
The pressures that created the slowdown in deals have also pushed down prices for income earning real estate assets by 1.3 percent between April and June when compared with the first quarter of the year, with cap rates for office properties in the city having risen by 30 basis points between the second quarter of 2018 and same period of this year.
The confirmation of market pressure comes in the latest edition of the Global Cities Commercial Property Price Indices report published by RCA, and follows a series of appeals from Hong Kong business leaders, most with vested interests in the property market, for street protestors to scale back their demonstrations before the economy is damaged irreparably.
While RCA’s data is from the second quarter, according to Bloomberg data, another $29 billion has been wiped off the market value of three of Hong Kong’s biggest developers since 19 July, with Li Ka-shing’s CK Asset down to the tune of $5.09 billion, while Raymond Kwok’s Sun Hung Kai has lost $10.2 billion, and Henderson Land is $4.7 billion worse off.
Hong Kong Transactions Drop Off Sharply
The RCA report, which analyses transactions in 18 global cities, said that although Hong Kong has been the best performer of all metros over the last ten years, commercial property transaction volumes have dropped from their 2018 high and may have peaked.
Deals in Hong Kong for the past four quarters totalled $16.3 billion, a year-on-year fall of 42.2 percent, although the market data provider noted that the decline had started before the current political unrest.
Tokyo’s five main wards also slowed over the past four quarters, with rolling transaction volumes down 28 percent to $10.6 billion compared with the previous 12 months.
By contrast, transaction volumes in Seoul and Singapore rose, with the South Korean capital seeing $15.5 billion in deals, a 9.2 percent increase over the same four-quarter period ending in June 2018.
Singapore was the best performer of the four Asia Pacific cities measured by RCA, with a 22.3 percent increase in transaction volumes to $8.8 billion year-on-year.
In Europe, commercial property deals in the UK also plunged, declining 27.4 percent to $39.6 billion over the past four quarters, while Paris recorded a fall of 23.2 percent to $25.2 billion.
Hong Kong Price Slump Follows APAC Trend
The 1.3 percent quarter-on-quarter decline in commercial real estate prices in Hong Kong was mirrored by a 0.6 percent slide in Singapore and a 0.2 percent dip in Seoul.
Tokyo was the only Asia Pacific city measured by RCA to buck the trend. Prices rose in Greater Tokyo by 1.8 percent, though they fell 1.3 percent in the city’s five main wards.
“The economies of this region are tied to global trade and disruptions from trade disputes are reducing optimism,” said RCA in its analysis of the downturn in Asia Pacific.
Despite the quarterly declines, all four APAC cities covered by the market data provider, except Tokyo, posted an increase in prices year-on-year, with Hong Kong up 3.9 percent, Singapore rising two percent and Seoul eight percent.
By contrast, prices fell 6.3 percent in Tokyo’s five main wards over the past four quarters of the year.
RCA said that the disconnect between volume and pricing in the region reflects a stickiness in commercial real estate valuations.
Market Warning Signs Emerge
Hong Kong has seen the sharpest upward movement in cap rates of all the global cities observed by RCA over the past four quarters with a 30 basis point increase from 2.3 percent last year to an average of 2.6 percent at the end of June.
Rising cap rates for the office sector were also seen in Singapore, Seoul and Tokyo, as Asian markets face pricing pressures, according to the market data provider.
Commercial real estate prices fell on a quarterly basis in nine out of the 18 cities that RCA measures globally, which the market data provider interprets as a warning sign.
The last time ten markets posted declines in prices was in 2010 in the aftermath of the global financial crisis, according to RCA.