Hong Kong office sales in December worst since 2008, with only three deals recorded
- A total of 196 office transactions were recorded in 2018, a drop of 45 per cent on year, according to Midland IC&I
- December saw just three sales of office space, the lowest for any single month since 2008
Only three sales of office space were completed in Hong Kong in December, the lowest number in a decade and a sign of the spreading malaise in the city’s property market.
For the whole of last year, there were 196 sales of either single offices, whole floors or entire office buildings, 45 per cent less than in 2017, according to property firm Midland IC&I.
“Turnover of offices started to sink in the second half of the year as factors like the US-China trade war and a volatile stock market dampened investment sentiment,” said Eric Ong, chief operating officer and director of the commercial department at Midland, adding however that December was traditionally a quiet month due to the holiday period.
The slowdown in office space sales comes as residential property sales slump and prices fall after an over two year run of gains.
Analysts have warned homeowners to expect further falls in home prices – up to 25 per cent according to some views – as the trade war, volatile stock markets and rising interest rates keep buyers away.
Meanwhile the demand for office space is likely to slow for the same reasons, as companies – particularly previously big-spending mainland ones – become wary of the uncertainties and delay their expansion or relocation plans.
December marked the third straight month in which fewer than 10 office sales were recorded across the city, and was a sharp fall from the peak in March when 33 deals were sealed.
Last month also ranked as the first month on record that no transactions were recorded in 47 prime office buildings, including Shun Tak Centre in Sheung Wan, Far East Financial Centre in Admiralty and King's Wing Plaza in Sha Tin, the three which had recorded the most transactions last year, according to Midland.
The three deals that were done were in Enterprise Square Three in Kowloon Bay, Montery Plaza in Kwun Tong and COS Centre in Kwun Tong.
The property agency tracks sales activity in 50 major office buildings across Hong Kong.
In the year ahead, JLL has forecast the prices of top-grade offices to drop 10 per cent, while Colliers sees rents for prime offices in Central and Admiralty dropping 4.8 per cent.
However areas outside Central are likely to see less impact from the slowdown because some firms are choosing lower-cost locations, analysts have said.
Denis Ma, head of research at JLL, cautioned that Hong Kong’s office property was also at risk should a recession unfold in the US economy in the coming year, as any downturn in US activity would immediately impact Hong Kong’s export-oriented economy.
Other analysts believed the outlook for the office property market would hinge on talks between China and the US in the coming months aimed at solving the trade dispute.
“Whether things will pick up depends on the results of the US-China trade negotiations,” said Charles Chan, managing director of valuation and professional services at Savills.
“If the result is good, it would be possible to see a recovery in the market. If the problems cannot be resolved, investment sentiment is likely to remain downbeat as the Chinese economy may worsen as a result of the trade war and Beijing may impose stricter capital controls,” Chan said.
He added that the number of sales of office space was likely to remain low until at least February.
The prime office market also softened in other parts of China, according to Cushman & Wakefield.
For instance, in Beijing office vacancy rate rose 0.4 percentage point to 3.8 per cent in the quarter ended in December as a result of increased supply and tenants choosing to rent less space to control costs.
In Guangzhou office vacancies rose 1.3 percentage points to 5.6 per cent in the quarter ended in December.