Hong Kong Commercial Property Market

Hong Kong Commercial Property Market Could Struggle In H1 2023

HONG KONG – An MSCI analyst thinks that the Chinese territory’s commercial real estate market could see weaker demand during the first half of the year due to higher borrowing costs, reported the South China Morning Post (SCMP) on Friday morning (10 February, SGT).

MSCI’s Head of Asia real assets Benjamin Chow said commercial property investment volume in Hong Kong could languish over the next few months, and the tally could potentially fall below where it was even in 2022.

“That is largely because at the start of 2022, the full impact of the interest rate hikes was not yet felt so it only came towards the end of the year. And obviously, Hong Kong’s monetary policy and exchange rate policy is, in some sense, quite heavily influenced by the US,” he explained.

Earlier in February 2023, the Hong Kong Monetary Authority (HKMA) increased the city’s base rate by 25 basis points (bps) to 5 percent, a 15-year high, to maintain the local currency’s peg to the American greenback.

Chow’s dismal outlook comes as commercial property deal-making in Hong Kong and other markets in Asia Pacific faced a terrible situation last year. Based on data from MSCI Real Assets, investment volume plunged by 41 percent to US$6.7 billion in 2022 on an annual basis, with sales of office properties sluggish and rising interest rates impacting rents of office space in Central.

“Given the adjustments started to happen in the middle of last year, we would expect at least 12 months of subdued investment activity,” reckoned Chow. “The quicker markets will start to pick up in the third quarter, and the slower ones may not pick up until 2024.”

The forecast is based on how quickly prices and transaction volumes adjusted in previous market cycles, like what occurred after the 2008 Global Financial Crisis.

While Chow foresees that prices of commercial assets would fall as financing costs increase, he refused to say by how much. Still, he noted that prices of office properties and retail units in Hong Kong have already dropped by about 20 to 25 percent.

“[The fall] is probably going to be a bit harsher for Hong Kong compared to some of the other markets,” Chow added.

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