Yields on commercial investment properties have fallen to as little as 2 per cent, but transactions show that even these poor returns have not scared off investors.
A steady rise in the prices of retail shops and offices, which had not been matched by rising rents, had whittled rental yields down to between 2.2 and 2.3 per cent in prime locations, and just 2 per cent for grade-A offices in the core Central district, said Elvin Yau Chun-fat, a director of property consultancy DTZ's investment department.
Nonetheless, the property investment market has been well supported. Research by Centaline Property Agency showed that sales of retail properties climbed 12.2 per cent to HK$8.04 billion in April, the highest since the previous market peak in 1997.
Sales of office properties increased by 22.4 per cent in April to HK$6.45 billion, the highest in 13 months.
'The retail market is the most active as it has directly benefited from the influx of mainland tourists,' Yau said. 'Buyers remain interested despite the fact that at the moment they can generate a yield of just 2 per cent, because they expect yields will increase when they renew tenancy leases. It is not uncommon to see the rents of some shops in prime locations double when their leases expire.'
SHK Hong Kong Industries sold its three-storey retail shopping complex at 108-120 Percival Street in Causeway Bay to a mainland investor for HK$1.15 billion last week, 248 per cent higher than its acquisition cost seven years ago. It is vacant and the mainland buyer is looking for a tenant willing to pay HK$5 million a month.