The sharpest price corrections in Hong Kong's commercial market after the 2008 crash.

 

However, in the second half of 2020, price corrections will be less serious. Properties for sale in Doha

Hong Kong's commercial property leasing and investment markets experienced the sharpest correction in the first half of this year since the global financial crisis in 2008, according to international property consultancy JLL. However, according to JLL, the price correction in the next six months will be less serious, and there will be signs of optimism in the medium term.

 

In the first half of 2020, mass residential capital values are resilient, but increasing unemployment will put downward pressure on home prices by the end of the year.

 

Owing to the ongoing confusion surrounding COVID-19, corporations are delaying decisions on office specifications. In the first half of this year, new lettings in the overall Grade A office industry fell by 53% in terms of floor area as compared to the same time last year. The total Grade A office market saw a negative take-up of 1.42 million square feet, which is one of the largest withdrawals in the market's history. Tenants seeking cost-effective offices to handle real estate expenses despite uncertainty boosted leasing demand in decentralized submarkets.

 

Due to poor leasing demand, the vacancy rate in the overall Grade A office sector increased to 7.6%, the highest level since September 2009. Vacancy continued to rise in all conventional core office submarkets due to ongoing decentralization and consolidation/downsizing requirements.

 

Due to corporate cost-cutting measures, surrender space has reached an 18-year high of 1.3 million sq. ft, with 74 percent of the space located on Hong Kong Island.

 

Central's Grade A office rents fell 17.6% to HKD 100 per sq. ft in the first half of 2020, the sharpest decline among the office submarkets. Due to lower leasing demand, it has fallen 23.3 percent from its peak in April of last year.

 

JLL's Head of Markets in Hong Kong, Alex Barnes, said: "Due to the weak economy, leasing demand will remain sluggish in the second half of this year. We anticipate a 20-25 percent decrease in Grade A office rents this year, following a 13.2 percent drop in the previous six months. Because of the high vacancy rate, central rents will be the hardest hit, falling by 25-30% in 2020. In the second half, the rental drop would be less serious."

 

However, there are signs of development in the medium term. "The secondary listing of Chinese companies on the HKEx is expected to boost leasing demand in the region. The downstream market opportunities for ancillary finance and business services would help overall business growth, even if it does not result in these companies taking on large office requirements right away "Added he.

 

Rental cost correction would improve the city's operating competitiveness and enable medium-term development for a variety of industries that would otherwise face rental cost constraints. COVID-19 has accelerated workplace improvements, which will help office relocations and additional demand in the medium term.

 

Market for Retail

Owing to travel restrictions and quarantine measures imposed by local and international governments in response to the COVID-19 pandemic, total tourist arrivals fell by 88.2 percent y-o-y in the first five months, reaching a record low of about 4,000 in April.

The pandemic has thrown the retail industry into a deep freeze, particularly in industries that depend heavily on the tourist market. In the first five months of the year, retail sales of jewelry and watches fell by 67 percent year over year, the steepest decline in the retail industry. Only supermarket retail sales increased during this time period.

Many retailers continued to put off leasing negotiations because of the extreme disruption caused by COVID-19. Rents of high street shops in the four main shopping districts fell 26.5 percent in the first half of 2020 due to rising vacancy pressure. During the same time span, prime shopping mall rents fell by 20.8 percent.

According to a JLL retailer survey conducted in Q1, nearly 42% of respondents took a 'wait-and-see' approach to retail leasing. Around 10% of retailers will stick to their original expansion plans, with multinational F&B and supermarket chains being the most enthusiastic. In order to secure better places, lifestyle, health, and schooling are all in good spirits.

JLL's Head of Retail in Hong Kong, Oliver Tong, said: "Due to the ongoing pandemic and economic uncertainty, leasing demand will remain poor in the second half of this year. However, foreign mass-market and mid-market operators continue to be interested in expanding in Hong Kong, while luxury retailers merge their portfolios or move for cost-cutting reasons. The leasing market will become more diverse, and retailers will try to attract and engage customers by incorporating more experiential elements into their shops. Since a complete return of tourists is unlikely this year, the retail sector will depend on local spending. We anticipate a 35 percent to 40 percent decrease in high-street shop rents this year, while prime shopping center rents will rise ""Drop 25% to 30%," says the author.

"We expect to see a more diverse and healthier business environment in the medium to long term, where retailers and landlords can continue to evolve exciting ideas to build better customer experiences, taking the Hong Kong retail scene to the next level," he said.