Expecting Asia-Pacific commercial property prices to drop significantly? Don’t hold your breath

Name: Coronavirus: Hong Kong to ease social-distancing rules as city sees record 8.9% economic slump
Uploaded: 2020-07-13T19:00:05.000Z
Duration: 2 min 2 s
Description: Coronavirus: Hong Kong to ease social-distancing rules as city sees record 8.9% economic slump

Asia’s commercial real estate market has yet to reflect the deterioration in occupier fundamentals in many countries

Although the drop in prices has been negligible, Asian commercial property still offers investors attractive returns compared with other asset classes

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A man walks through an empty shopping mall in Causeway Bay, Hong Kong, during the early weeks of the coronavirus outbreak in the city. Photo: Sun Yeung

Nicholas Spiro

Published: 3:00am, 14 Jul 2020Updated: 5:30am, 14 Jul 2020

In Hong Kong, retail sales fell 32.8 per cent year on year in May, the 16th straight monthly decline. The triple whammy of the collapse in tourist arrivals, a prolonged recession and the Covid-19 pandemic caused prime high street rents to plunge 15 per cent year on year in the first half of 2020, having already fallen almost 20 per cent last year, data from CBRE shows.

In a sign of the severity of the hit to capital values in the city’s retail sector, prices for high street shops in core locations plummeted 25 per cent in the first half of this year, by far the sharpest decline in the Asia-Pacific region.

Yet, for investors seeking to capitalise on the distress in Hong Kong’s retail sector, bargains are few and far between. Presenting its outlook for the city’s property market on July 8, CBRE noted that capital values have fallen “largely to adjust for rental declines. The number of distressed assets remains limited and [rental] yields have only expanded marginally”.

The modest shift in pricing, even in the region’s hardest hit market, shows that Asia’s commercial real estate investment market – which was already in the late stage of the cycle before the pandemic struck, with prime yields in all sectors standing at historic lows in the main markets – has yet to reflect the deterioration in occupier fundamentals in many countries.

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Coronavirus: Hong Kong to ease social-distancing rules as city sees record 8.9% economic slump

In an indication of how negligible the correction in prices has been so far, an internal survey of CBRE’s investment and valuation teams across Asia, conducted between May 26 and June 1, revealed that prime office yields in core locations had risen in just three out of 17 major cities, and only modestly at that.