At the start of the year, prominent real estate advisor Savills saw office rents rising (+8% to 10%) and a retail sector recovery (+2% to 4%) in 2018. Sales figures increased (+5 to 9% depending on the asset) with the exception of prime street shops (-3%). Given the dual threats of the US / China trade conflict and interest rate hikes, the Grade A office market saw price declines, but rents are expected to gain 2.5 to 5% in 2019. Shopping centres and prime street shops should both hold steady at 2% gains in rent, but street shop prices could lose 5% this year.
Grade A office momentum waned in Q4, with average prices registering a 4.7% decline overall, the first decline since the first interest rate hike in late 2015. Central registered a rebound in prices by 1.8% in Q4, mainly in fringe areas such as Admiralty and Sheung Wan; rents rose, too. As a result of the trade-related caution, Kowloon commercial property prices fell by 7.0%, 5.8% and 4.0% in Tsim Sha Tsui, Kowloon East and Kowloon West in Q4 respectively.
The focus of the retail investment market was on the disposal of 12 suburban retail malls by the Link REIT for HK$12 billion in Q4. The retail market recovery (retail sales up by 10.6% over the first 10 months of 2018) has been focused on low-to-mid end items. Prime retail areas, to the contrary, remained quiet with luxury retailers extremely cautious in taking on expansion plans, and as such many investors adopted a wait-and-see attitude for prime street shops, leading to further price decline of 2.1% in Q4.
Mr. Peter Yuen, Managing Director, Head of Investment & Sales said: “We saw PRC firms boost Central office rents and sales prices, while decentralisation is driving demand elsewhere. Rising interest rates, a slowing Chinese economy as well as a protracted Sino-US trade war led to recent rental and value fluctuations, however the wait-and-see consensus will not last for long.”
Mr. Simon Smith, Senior Director, Research & Consultancy said: “The broad supply situation remains extremely tight in the commercial market and interest rates are at 10-year lows. Even so, trade concerns and stock market volatility are weighing heavily on sentiment.”