Hong Kong’s red-hot property market — one of the world’s most expensive for prime office space — is starting to buckle under the strain of China’s economic slowdown and global trade ructions, led by lower demand from mainland Chinese companies.
After spending much of the past decade ramping up their presence, many mainland entities are rethinking their expansion plans in the city, leading to weaker office rents and prices, property agents said.
Data from commercial real estate agent Colliers released last week show that gross take-up, or new leases, to mainland Chinese companies fell almost 40 per cent in the first half of 2019, compared with the same period last year. Average office rents in the city are likely to fall in 2019 for the first time in six years as a result, by 1.3 per cent, and strata-sale office prices by 5 per cent, Colliers said.
Mainland companies’ presence in Central — Hong Kong’s main business district — has fallen significantly since they peaked at 50 per cent of all available office space in 2017, figures from JLL, another commercial estate agent, released earlier this month show.
“Fewer Chinese companies are coming to set up operations in Hong Kong, and that is dampening demand,” said Peter Churchouse, managing director of Portwood Capital, an investment company.
A senior Hong Kong government official warned on Sunday that mass demonstrations of the past two months had taken their toll on the territiory’s economy. The Asian financial hub was on Sunday hit by a third consecutive day of protests, as police fired tear gas at demonstrators near Beijing’s main representative office in the city.
“Many retail and catering operators have said that their recent business volume has dropped sharply,” Paul Chan, Hong Kong’s finance secretary, wrote in a blog post on Sunday, adding that the protests had damaged Hong Kong’s international image.
The US-China trade war, in which the two countries have raised tariffs on billions of dollars of each other’s goods, has also had a significant effect. Hong Kong, a hub for east-west trade, has been buffeted by the tensions, with economic growth slowing markedly from 1.2 per cent year on year in the fourth quarter last year to 0.6 per cent in the first quarter.
“Increasing trade tensions and a slowing Chinese economy are leading many companies to put Hong Kong expansion plans on hold,” said John Siu, managing director of Cushman & Wakefield Hong Kong, a commercial property broker.
Chinese government policy is also affecting demand from mainland companies, analysts say, pointing to Beijing’s introduction of measures to control capital outflows.
“The dramatic slowdown in Hong Kong office demand from Chinese firms is due to a number of simultaneous conditions, almost forming a perfect storm,” said Brock Silvers, head of Kaiyuan Capital, pointing to China’s sluggish economy where growth in the second quarter fell to 6.2 per cent year on year, its lowest in almost three decades.
The chill is also being felt in the city’s retail property sector. Leases in the Causeway Bay shopping district have long rivalled those in New York’s Fifth Avenue as the world’s priciest.
Data from Savills, a property company, also released this month, show that retail rents in Causeway Bay and Central fell 1.1 per cent and 3.8 per cent year on year, respectively, in the second quarter. Retail sales in Hong Kong have also slipped this year as mainland shoppers curb spending amid sluggish economic conditions.
A political crisis in Hong Kong, its worst in decades, could also be affecting sentiment in the city’s property market, analysts said. Protesters have launched a series of mass demonstrations since June, initially against a bill that would allow criminal suspects to be extradited to mainland China, prompting ugly scenes of demonstrators clashing with police.
In June, Hong Kong developer Goldin Financial withdrew a HK$11.1bn ($1.42bn) bid for a large commercial plot in the city’s Kowloon district, citing “social contradiction and economic instability”. Another large tract of land in the same area sold at a steep discount in July, the territory’s Lands Department records show.
Analysts say it is too early to tell what the unrest might mean for the city’s reputation as a regional centre for business and finance.
Hong Kong is still “Asia’s premier financial hub”, said Nicholas Spiro, partner at Lauressa Advisory, a property consultancy. “Things would have to get really out of hand politically for this to change.”