Commercial property transaction volumes plummeted 65% in Q3 as rattled Chinese investors retreat

Locals took charge but failed to plug the gap left by Mainland counterparts.

Deepening trade tensions between the US and China caused commercial property transaction volumes to nosedive by 65% QoQ to $19.5b in Q3, according to real estate consultant CBRE, as the SAR’s main source of real estate capital held back on their acquisition sprees. 

The headline transaction volume figures marks the lowest quarterly total in two years with local investors dominating buying activity in the alarmingly subdued market. In fact, domestic capital snapped up the lion’s share of Q3 commercial property investment volume at 78% edging out Chinese investors who only contributed 15%

“As Chinese investors have been a key source of capital for Hong Kong’s property investment market and the local economy is closely linked to that of China, any effect on the mainland will inevitably filter through to the local real estate investment market,” the report’s authors said.

Hong Kong accounted for 80% of Mainland overseas real estate capital in April-June with transaction volumes ballooning 155% YoY to US$3.4b, data from Cushman & Wakefield show.

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Against deepening trade jitters, however, CBRE expects cash-rich local investors to take the reins of Hong Kong’s property market as their Mainland counterparts and property funds continue to remain cautious and adopt a wait-and-see attitude.

In a breakdown, the quarter witnessed fewer major office deals in Q3 compared to preceding quarters with only nine en-bloc properties changing hands for $10.4b, well below the quarterly average of 17 en bloc transactions recorded in the past two years. Notable office transactions include the acquisition of two floors at The Center, the $1.25b purchase of 50/F by Guoco Group and the $787m purchase of 19/F by Gale Well Group.

“Office investment, particularly strata-title sales, will continue to be driven by end-users, who do not consider yield when making purchasing decisions,” forecasted CBRE, adding that momentum in capital values may taper off in the coming months.

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On the other hand, retail property investment remained focused on non-core districts which represented 80% of total investment volume. Neighborhood malls backed by strong local consumption will retain its strong appeal.

In stark contrast to the muted performance of commercial property segments, the industrial sector picked up the slack after accounting for six of the quarter’s nine en-bloc deals. Notable transactions include the $1.25b sale of Mee Wah Factory Building in San Po Kong to a newly founded property fund as well as the $770m acquisition of C S Logistics Centre by GDS Services for its first data centre location in Hong Kong.

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In fact, a number of Chinese developers have risen from their slumber to compete with local groups to acquire old mixed-use buildings and industrial buildings for redevelopment on the back of rising policy risk in the Mainland.

“CBRE expects this trend to continue along with the stronger emphasis on diversification.”