Capital values of Grade A offices up 4.2% in 2016

Thanks to record breaking en-bloc sales transactions.

According to JLL, the total investment volume of commercial and industrial properties over HKD 100 million dropped by 11% to HKD63 billion in 2016. Larger transactions continued to be underpinned by PRC investors which accounted for at least a quarter of total volumes, on par with 2015 levels.

The office sector was the most traded asset class with investment more than doubling to HKD 46.5 billion and accounting for 74% of total investment volume, compared to only 36% in 2015.

The uptick in volumes was led by acquisitions made by PRC investors, which accounted for 30% of investment volume in the sector, tight vacancy environments in the city’s core business areas and the availability of prime Grade A office assets on the market.

The on-going slump in the city’s retail sector kept investors at bay even though it was the only sector where capital values were in decline while investors adopted a wait-and-see attitude on industrial properties following the lapse of the government’s industrial building revitalisation policies.

In 2016, capital values of Grade A offices grew by 4.2%, driven by record breaking en-bloc sales transactions and a strong land sales market. Capital values of warehouses also surged 11.5%. In contrast, capital values of High Street Shops slumped 18.3%.

Denis Ma, Head of Research at JLL, said: “The investment market for commercial and industrial properties is now at a crossroads. Although the markets ended the year higher, they face increasing pressure from weakening rental markets and rising interest rates. Importantly, the liquidity provided by PRC investors is expected to fall significantly after the Mainland government imposed capital controls on overseas real estate investments. Without PRC