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Office rents plummet as coronavirus drags Hong Kong’s commercial property transactions to an all-time low

Hong Kong’s commercial property market, already reeling from last year’s protests, is about to slide further into the doldrums as the coronavirus epidemic saps demand, according to analysts.

The volume of transactions for office, retail and industrial properties is poised for a historic low in February, having already sunk to record levels in the previous two months. Meanwhile, a grade-A office building near Central has seen its rent plummet by two thirds to HK$42 (US$5.4) per square foot, the lowest in 10 years.

The number of deals signed in the commercial real estate sector is likely to fall below 200 this month for the first time since records began in July 1995, real estate agent said.

“The number has been below 300 for a period of five straight months, averaging about 250, and that’s the first time that has happened,” the agent said. “The figure in January [202] has not reflected the impact of the coronavirus outbreak. Transactions are likely to remain low.”

In particular, the number of office transactions in the three months to March may add up to fewer than 150, marking an all-time low, according to another real estate agency firm.

“The emergence of the latest coronavirus outbreak has undoubtedly taken a toll on the office market,” the agent said. “Like during the Sars outbreak, this epidemic will freeze the turnover of offices in the short term.”

Central’s premium office rents dropped the most among Hong Kong’s core business districts as its vacancy rate reached 4 per cent in January for the first time in more than five years, according to an international real estate agency firm.

Bank of America Tower in Admiralty recently leased a unit measuring 2,367 square feet for HK$110,700 (US$14,212) a month, or HK$42 per sq ft, the lowest in a decade, agents said.

The rent per square foot is 67.2 per cent lower than another unit of 3,100 square feet in the same tower that leased for a record high of HK$128 per sq ft in mid-2018.

The amount of grade-A office space being leased fell by 173,600 square feet last month as freshly vacated premises remained on the market, according to the agent.

“Immediate demand has weakened off the back of the coronavirus, as a number of businesses put decision-making on hold,” the agent said.

The outbreak threatens the outlook for this year, “forestalling any possibility of a near-term economic recovery”, another international real estate agent said.

“The Covid-19 outbreak deals a second blow to Hong Kong’s property market, already weakened from the social unrest in 2019, with most sectors to remain under pressure over the near term,” the agent added. “The office market has come under increased pressure from depressed occupier demand in the face of uncertainty.”

Average Hong Kong and Central office rents will fall by 8 per cent and 13 per cent respectively this year, according to property agency.

“Inspection activity [people viewing properties] should decline and hence leasing momentum will probably remain slow,” another agent said. “A challenging business situation will hinder expansion.”

The agent added the city is likely to see “postponement of IPOs or companies’ plans to open offices in Hong Kong”.

(South China Morning Post)


200,000 new homes to be built in 5 years

The SAR administration estimates that nearly 200,000 private and public housing homes can be offered over the next five years, and it is to set aside about HK$22 billion to invest in Hong Kong-based projects.

The estimated annual supply of private housing from 2020 to 2024 is 19,600 units on average, Financial Secretary Paul Chan Mo-po said in his budget speech yesterday.

Potential land supply from the 2020-2021 land sale program, railway property development and private development and redevelopment projects are expected to provide about 15,700 homes, and another six commercial sites are estimated to be able provide a floor area of about 830,000 square meters, Chan said.

"I don't think there is a big problem in achieving the target of 19,600 between 2020 and 2024," a real estate agent said. "But if land sales continue to be limited that may impact the actual completions beyond 2024. And in 2025 or beyond we may see a significant drop in completions."

The latest land forecast will be released in the second quarter.

Meanwhile, the estimated production of public housing for the next five years is 100,400 units, comprising 74,400 public rental homes and Green Form Subsidised Home Ownership Scheme units and 26,000 subsidized sale units.

Chan said the government will commence rezoning procedures for another 25 sites in the coming year, which will involve nearly 85,000 units. More than 90 percent will be public housing.

And government sources said the Wang Chau Phase 2 development is involved. That is expected to provide about 14,000 public housing units.

Government sources also said the SAR has finished the assessment of 160 hectares of brownfield sites, which can mean more than 20,000 public housing units completed within 10 years.

And Chan said Hong Kong will continue to pursue new development area projects, to rezone sites for housing development and to develop brownfield clusters and urban squatter areas to provide land to increase the housing supply.

Separately, Hong Kong is to set aside HK$22 billion from the Future Fund to set up the Hong Kong Growth Portfolio for direct investments in projects with a "Hong Kong nexus."

(The Standard)