A property market correction would hit Hong Kong hard, however optimistic the expert forecasts

The governance crisis in Hong Kong shows no sign of ending. The fact remains that office leasing activity has fallen off a cliff and property investors, including those from the mainland, are cautious amid the continuing unrest

Reading Time:3 minutes

A view of the Hong Kong skyline, from The Peak on January 2. A December 2019 survey of private-sector business confidence in Hong Kong’s economic conditions in a year’s time found it has fallen to its lowest level since the survey began 21 years ago. Photo: Reuters

Published: 9:30am, 21 Jan 2020Updated: 10:29am, 21 Jan 2020

Narratives, whether true or not, can exert considerable influence over economies and capital markets, so much so that Robert Shiller, the Yale professor and Nobel laureate, recently published a book that examines the extent to which the actions of economists and investors are determined more by stories than hard data.

In the commercial real estate industry, the views of the big agents play an important role in shaping sentiment in both the occupational and investment markets. Towards the end of last year, as Hong Kong’s rapidly escalating political crisis tipped the economy into recession, several of the large brokers struck a decidedly negative tone on the outlook for the city’s property market in 2020.

In a report published last month, JLL declared that “the longest bull market in Hong Kong’s property market history ha[d] come to an end”, and warned that Grade A office rents would plunge between 15 and 20 per cent this year in response to the continued rise in vacancy rates. CBRE, for its part, in a report published last October, predicted that “geopolitical tension and local social unrest [would] continue to negatively affect [investor] sentiment in the coming months”.

While the two advisers still anticipate a sharp fall in rents and subdued investment activity this year, with the hard-hit retail sector bearing the brunt of the downturn, there has been a discernible shift in the tone and focus of their commentary and analysis.

In a report published earlier this month, JLL argued that in view of the surge in rents and capital values in Hong Kong’s real estate market since 2009 – with the notable exception of the high street retail sector where rents began falling in 2015 – a sharp correction would be no bad thing, providing much-needed relief to occupiers.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x