Real estate investment volumes dropped 25% in Q3

Investors are feeling the heat from rising interest rates and escalating trade tensions.

Real estate investment transaction volumes in Hong Kong fell 25% in Q3, totalling $222.4b (US$28.4b) over the last 12 months amidst domestic and mainland Chinese investors feeling the impact of global trade tensions and rising interest rates, according to Real Capital Analytics (RCA) Asia Pacific (APAC) Capital Trends report.

Despite this, Hong Kong still retained its crown as the region’s top investment destination for commercial real estate over the last 12 months. It has held this title since Q1 2017 after overtaking Tokyo.

Dominating the region alongside Hong Kong were Tokyo and Seoul, claiming nearly 44% of the volume of income-producing assets combined.

By sector, Hong Kong topped the ranks for office, industrial and retail in the first nine months of 2018 due to large deals by domestic and mainland Chinese investors.

“A weaker pipeline of pending transactions also suggests that 2018 will end with a whimper, rather than the bang anticipated a year ago,” the firm said in a statement. “RCA’s database shows only $5.3b (US$6.8b) of transactions pending in the marker for the final three months of 2018.”

Also read: Grade A office rental growth softened to 0.5% in October

Meanwhile, price growth also ebbed in Hong Kong with RCA’s commercial property prices indices (RCA CPPI) showing only a 4.% YoY growth in Q3, suggesting a marginal slowdown, the firm noted.

Hong Kong’s cross-border investors were also affected by the overall cooling of the Chinese economy, the firm noted, with capital flows into China which is their primary market declining 39%.

“Hong Kong’s mega deals of the past year appear to be giving way to a plateauing market,” RCA senior director of analytics for APAC Petra Blazkova said. “This is not surprising after an astonishingly strong run of performance.”