Interest rate rise no threat to Hong Kong’s commercial property market, says CBRE

Mainland Chinese buyers and global investors will help Hong Kong cope with the impact of interest rate hikes on commercial property, says property consultancy CBRE in its latest report.

The Hong Kong dollar peg to the US dollar has led to concerns over Hong Kong ’s property market outlook as the US Federal Reserve enters a cycle of rate hikes after nearly a decade. But CBRE does not see much threat to the city’s commercial property market.

“Hong Kong’s property market is far better placed today to weather the rate hike compared with previous interest rate upcycles,” said Marcos Chan, head of research at CBRE Hong Kong, Macau and Taiwan.

“The real estate sector has benefited from multiple factors, including a bigger pool of Chinese investors and end-users; sustained demand from global institutions; limited pressure on vacancy; and a lower gearing ratio.”

READ MORE: This is why Hong Kong’s office prices keep rising while property market slides

The report finds three key factors will prevent a drastic plunge in Hong Kong’s commercial property prices amid rate hikes: one, the hike has been anticipated for some time; two, interest rates will only rise from ultra-low levels and will be incremental; and three, there is a better balance between demand and supply, particularly in the office and logistics sector.

“Most investors with a mid-to-long-term investment horizon have already taken into account the interest rate factor when making their investment decisions,” said Kam-hung Yu, senior managing director, investment properties, CBRE Hong Kong.

Government statistics show residential capital values in Hong Kong have climbed 89 per cent, with that in the office sector growing 87 per cent and retail surging 104 per cent over the past five years. Having already locked in such big margins, commercial property vendors have significant room to cut prices to ensure sales, the report said.

READ MORE: Investors switch to Hong Kong office property market amid troubled outlook for retail sector

Real estate agency DTZ/Cushman Wakefield’s latest data shows Hong Kong’s office market rebounded in the fourth quarter of 2015. It also showed mainland Chinese companies’ expansion in the city helped push up office rentals in Central district by 15 per cent and 19 per cent for prime buildings from a year ago.

The retail market, however, continues to weaken due to falling tourist volume and sales. Average prime street rents dropped 4 to 7 per cent in the last quarter from the previous quarter.