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Hong Kong property market awaiting positives to rebound

Though cautious, rebound may take place in 2009 when positives set in.  The remarks underlined the 12-month forecast for the Hong Kong property market announced by Colliers International at its press conference today.

Colliers International: 2009 Forecast for Hong Kong's Property Sectors (Nov 2008 – Nov 2009 % Change YoY)

Commercial Leasing
Amid uncertain global economic outlook and low expectations on business growth, a number of companies have cost saving as one of the most important initiatives in their agendas. "The possible strategies that occupiers may consider include staff retrenchment, lease restructure, office decentralization… etc," said Iain Chapman, Director of Commercial, "On the other side, vendors are now open to negotiate with new tenants and adopt realistic approach on rentals." Therefore, these translate into further vacancy growth and drop of office rentals. 

According to Colliers International's projection, the Grade A office rentals and prices are expected to decrease 26% and 35% respectively.

Besides the traditional core business districts on Hong Kong Island, the emerging office areas in Kowloon also saw rental decrease. "Despite the downward trend expected in the near term, positive factors, for example, supportive arm from China, well equip the office market for any potential upside turn." said Fiona Ngan, Director of Kowloon Commercial.

Investment Sales
According to the latest record of property investment concluded at over HK$30 million, the number of transaction dropped 39% year-on-year (YoY) in 2008, while the total transaction value declined 44% YoY to HK$39,150 million.

In 2009, the investment market is expected to see more sources of funds, for example, some from Europe and South East Asia.  "Investors in property market generally remain cautious but optimistic," commented Antonio Wu, Regional Director of Asia Investment Sales, "Thus, some end-users, such as Chinese enterprises, banks and insurance companies, may become active to invest in properties for owner-occupation after price adjustment.  In terms of property type, office and retail properties are expected to be the most attractive sectors in 2009."

Luxury Residential
2008 saw significant retreat in buying demand in luxury residential market.  "Luxury residential investors and end-users were sidelined by credit crisis and financing barrier respectively," mentioned Ricky Poon, Executive Director of Residential Sales, "the number of luxury residential transactions worth over HK$100 million decreased notably by 44% YoY in 2008." 

Although luxury residential rentals and prices might see further decrease of 15% and 20% respectively in 2009, initial positive signals might emerge if banks start adopting less restrictive lending policies. "As the discrepancy of sellers' and buyers' expectation on prices narrows, the sales volume will then rebound and is predicted to rise 87% in the next twelve months," commented Simon Lo, Director of Research & Advisory.  "Based on the past property market cycle, the first half of 2009 is expected to be a good entry point."

In 2008, industrial rentals decreased 8% YoY while prices fell 7% YoY.  The slowdown of regional trade activities acted as the major cause for weak re-exports performance.  Meanwhile, local contraction of retail spending also worsened logistics activities.  Although I/O premises were the outstanding growth components in the market in recent years, they were also challenged by the slowdown of the office sector.  "Industrial rentals and prices are expected to decline by 17% and 26% respectively in 2009," said Simon. "As Asia market is expected to be the relatively resilient region compared to other locations in the world, Hong Kong, being an important trade and logistics centre in the region will benefit from it."

In the retail market, mid-range food & beverage operators received major hit amid the current downturn cycle.  However, there was no major rental defaults across the board when compared with the previous ‘SARS' crisis.  Retail market for child-care and basic necessities remained resilient.  In order to cope with the trimming sales income amid the weak economy, retail tenants continue to go for cost-effective options. 

In the sales market, investment yields is expected to edge up at least 50 basis points and cash-rich buyers will take the lead.  According to Colliers International's forecast, the rentals and prices of ground-floor retail shops in core areas are expected to fall 11% and 20% respectively in 2009.