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Q1 2016: Hong Kong Commercial Property Monitor Sharp fall in occupier and investor demand for retail space

Occupier Market

  • At the headline level tenant demand decreased for the third consecutive quarter with a net balance of 25% more respondents reporting a fall (rather than a rise).
  • Occupier demand decreased sharply in the retail sector, fell modestly in the industrial segment, while in the office sector tenant enquiries continued to rise steadily.
  • The supply of leasable space increased in the office and retail segments while holding broadly steady relative to Q4 2015 in industrial sector.
  • The growing slack in the retail sector has encouraged landlords to increase the incentive packages on offer to tenants with rent free periods the most common form of inducement.
  • In the retail and industrial sectors, rents are expected to fall over the coming three and twelve month periods, while in the office sector rents are forecast to continue rising.
  • Prime retail units are expected to see the sharpest falls with rents in the Tsim Sha Tsu and Causeway Bay retail districts forecast to fall by 14% over the year to come.
  • At the headline level, respondents expect rents to fall by 3.6% over the coming year.

Investment Market

  • Investor demand for office premises continued to rise in Q1 while demand for industrial and retail units fell.
  • The supply of properties for sale increased in the retail and industrial sectors while in the office sector it remained broadly stable.
  • A net balance of 23% more contributors thought that credit conditions had deteriorated during Q1.
  • At the 12 month horizon, capital values are expected to continue rising, albeit very gradually, in the office sector. Meanwhile, in the industrial and retail segments, respondents foresee prices falling in the year to come.
  • The retail sector is forecast to see a particularly sharp fall in capital values (see chart below) over the coming year. On average, respondents foresee prices across prime and secondary retail space falling by 9.6% and 7.8% respectively.
  • The Hong Kong Investment Sentiment Index (ISI) remained firmly in negative territory, at -24%, in Q1. The ISI reading has now deteriorated in each of the last three quarters.

RICSHongKongCommercialPropertyMonitorQ12016.gif

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Content provided by Royal Institution of Chartered Surveyors
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