Consultants predict a challenging few months ahead amid the global financial crisis as buyers, tenants and companies put their plans on hold The Macau property market is feeling the chill as uncertainties arising from the global financial crisis and slower pace of economic growth affect sales and leasing activities in the office and residential sectors. Property consultants are cautious about the market prospects, with prices and rents expected to stall or fall as a result of dwindling demand from buyers and tenants. Gregory Ku Ka-ho, managing director for Macau at Jones Lang LaSalle, says the office market has been driven by the influx of companies in the past few years as economic growth gained pace with the opening of more casinos and a booming hotel industry. 'Major tenants include airline operators, banks and gaming-related businesses. In particular, accounting firms and financial companies have actively expanded their presence including their workforce and office spaces in Macau in recent years,' he says. But the office sector has shown signs of a consolidation since the second quarter, with a slower growth rate in both selling prices and rents. On the sales market, transactions are mainly concentrated on lower-grade office buildings. In the third quarter, office prices recorded an increase of just 0.9 per cent, compared with a 2.3 per cent rise in the second quarter and 11 per cent in the first quarter, according to Mr Ku. In the fourth quarter, office prices are expected to head into negative territory in terms of growth. The leasing market also experienced a similar growth trend. Office rents saw a 0.2 per cent rise in third quarter, after a 0.9 per cent increase in the second quarter and a 2.1 per cent growth in the first quarter. Mr Ku says he expects the market's softening to continue into next year as the gaming-driven economy looks set to slow down in anticipation of fewer tourists and visitor arrivals. 'The market will be challenging in the next few months with the uncertainties of the global financial crisis. Companies will probably adopt a wait-and-see attitude in the short term and put their expansion plans on hold. Landlords will be forced to reduce rents to attract tenants.' Mr Ku says the office vacancy rate stands at 19 per cent, which is much lower than the average of 30 to 40 per cent before the liberalisation of the gaming industry. An absence of new office supply in the coming year will provide some support to the market. The Macau office market is relatively small with only about 49 office buildings of all grades providing a total stock of about 11 million square feet. AIA Tower and FIT Centre are the only two grade A office buildings on the market. Simon Lo Wing-fai, director of research and advisory at Colliers International, said the average rental for AIA Tower was about 15 patacas per sqft a month while the rate at FIT Centre stayed at about 22 patacas per sqft. 'There will be no new supply of grade A offices in the coming two years. However, the rental rates may come down a little due to the effect of the global financial tsunami and a slower growth of the local economy. Service operators and businesses related to the expansion of casino and hotel industries will be the major force taking up office space in the next couple of years,' he says. The outlook for the residential market in Macau is mixed as property prices face downward pressure and rents appear to be more stable. Jeff Wong chi-wai, local director and head of residential sales for Macau at Jones Lang LaSalle, says luxury home prices in Macau have entered a period of consolidation since the second quarter after a rally at the start of the year. However, the leasing market has been supported by stable demand with the continued influx of expatriates for the expansion of Macau's casino and gaming industry. 'Luxury rents have increased by about 15 per cent so far this year, following a 20 per cent rise last year. There were signs of stabilising recently, but we expect to see sustained support from tenants,' Mr Wong says. Mr Lo says residential prices in Macau have decreased by more than 10 per cent so far this year, but rents recorded an increase of more than 20 per cent. In the sales market, homebuyers include cash-rich locals, long-term investors and overseas purchasers mainly from Hong Kong and Southeast Asian countries, Mr Lo says. The leasing market has been supported by a massive growth of expatriates working in new hotels and casino projects. Mr Lo says the Macau residential sector is expected to see more than 12,000 units completed from 2008 to 2010. 'The market outlook remains uncertain due to the threat of a global recession following the recent financial turmoil. In addition, banks are tight on their mortgage lending policy and are adopting a conservative strategy on property valuation. 'More property owners will offer their units for lease instead of for sale, while corporate organisations will reduce spending. This will stall the growth of rental and individual purchasers and may delay their buying decisions,' he says. In the longer term, Mr Lo expects the Macau property market to continue its path of growth with a reactivation of the secondary market. At the same time, the government's town planning initiatives including height restrictions will help the city to grow and develop better. 'The gradual completion of the Cotai Strip and the development of the meetings, incentive tours, convention and exhibitions industry will help lift Macau's property market's growth to a new platform,' he says.