The View | Evergrande crisis and China’s economic risks add to Hong Kong commercial property market’s wall of worry

Mainland firms have been a key source of office expansion demand in Hong Kong, and Beijing’s regulatory clampdown threatens to put a damper on this

Nevertheless, what is striking is how activity in the occupier and investment markets has picked up since the end of last year in the face of persistent challenges

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Office buildings in Admiralty and Central in Hong Kong are seen in July 2020. Despite a deceleration in the pace of the decline in office rents, Hong Kong will still be one of the region’s worst-performing markets this year. Photo: K.Y. Cheng

Published: 4:30pm, 4 Oct 2021

Just when the recovery in Hong Kong’s battered commercial real estate sector was gathering momentum, another menace threatens to undermine confidence in the occupier and investment markets.

The debt crisis at China Evergrande Group, the stricken developer with a staggering US$300 billion in liabilities, has exacerbated vulnerabilities in the world’s second-largest economy, fuelling concerns about a much sharper-than-expected slowdown.

China’s economy has rapidly become a key source of anxiety in financial markets, not because of genuine fears that Evergrande’s woes will spark a crisis on the scale of the disaster that followed the 2008 collapse of Lehman Brothers, but because the risks to growth are multiplying.

The combination of a broadening regulatory crackdown, a sharp slowdown in the housing market and an energy supply crunch has caused a severe growth scare. Survey data published last week showed manufacturing activity in September contracting for the first time since the Covid-19 pandemic erupted.

The fierceness of Beijing’s regulatory interventions and the precariousness of the nation’s property-driven growth model have unnerved global investors, just when the US Federal Reserve and other leading central banks are about to start withdrawing stimulus.

For Hong Kong – the commercial real estate market in the Asia-Pacific whose performance and outlook are most reliant on what happens in China – the heightened risks on the mainland are the latest threat in a succession of headwinds that are weighing on leasing and investment activity.