Prime street shop values dipped 2.5% in 2Q15

It's been bitten by the volatility bug.

It has been noted that in Hong Kong, stock market volatility has introduced a note of uncertainty into the investment environment.

According to a research note from Savills, however, it is still too early to identify any far reaching implications.

Capital values made some minor headway across most sectors in the second quarter, with the exception of prime street shops which recorded a 2.5% decline.

Luxury apartments in particular posted a spectacular performance as values increased by 6.2% on the back of buoyant stock markets in both Hong Kong and mainland China. Savills doubts this rate of growth will be repeated in the second half, however, given recent uncertainties.

The industrial market, and warehouses in particular, managed to hold on to price gains but after a long bull run, it may be time to see some slowing of price growth.

Here's more from Savills:

Rents overall also showed modest growth during the second quarter with Grade A office rents outperforming, pushed upward by demand from financial services firms as a result of the Stock Connect schemes.

As vacancy rates rose in the warehouse market, rents drifted and we expect further weakness over the second half. Logistics has been hit by the slowdown in the retail market where prime street shop rents dipped by 5.5%.

We remain moderately bullish on shopping mall rents, however. The expanding office market took the luxury apartment along with it and budgets of HK$100,000 to HK$150,000 per month were again active. Rents rose by 3.2% over the second quarter.

Early indications of volumes in the second quarter suggest that activity levels were low even though the stock market volatility only began towards the end of Q2.

It was only the last two weeks in June which saw moderate selling pressure on the mainland bourses, with little impact on Hong Kong’s property markets, while early July saw more rapid adjustments in equities with possible ramifications for real estate here, depending on how long the uncertainty lasts.

A look at HK$500 million plus deals during the second quarter reveals a focus on residential, industrial and office assets. A broader look at deals above HK$100 million saw overall volume (108 deals) remain stable when compared with the first quarter (107 transactions), but there was a marked increase in residential transactions (from 39 deals in Q1 to 56 deals in Q2) at the expensive of office, retail and industrial.

Looking ahead, hotels/tourism and retail/logistics may be expected to see some short term weakness as mainland per capita spending drops off and visitor growth numbers moderate. Anti-corruption measures as well as the recent stock market turbulence can be expected to continue to have an impact into the second half of the year as PRC equity valuations remain questionable.

We are more positive on the outlook for offices and residential where limited supply and a fresh wave of demand related to the new Stock Connect schemes seems to have reinvigorated these two sectors.