Commercial property deals dropped 6.2% to $2.1b in Q2

The office sector continued to drive property investments, accounting for 53% of the total transaction volume.

Commercial property investment volume fell 6.2% QoQ, the second lowest quarterly total recorded since Q2 2016, to a mere $2.1b in Q2, a report by CBRE revealed. This brings the total to $43.6b in H1 2019—the lowest since H1 2016.

The office sector continued to drive property investments, accounting for 53% of the total transaction volume. During the quarter, Goldin Financial Holdings forfeited its deposit on the first commercial site on the Kai Tak runway earlier sold for $11.1b, citing social unrest and economic instability as the reasons for its decision.

The largest deal in Q2 was Gaw Capital’s purchase of 625 King’s Road in Quarry Bay for $4.75b or $15,781 psf. Gaw, or the consortium led by the fund, has reportedly deployed around $47.1b into Hong Kong real estate in less than two years.

Selected domestic investors were also active in the office sector, with an unnamed local buyer purchasing 21-23F of Convention Plaza in Wan Chai for $1.8b or $36,000 psf. Property funds and local investors accounted for 42% and 29% of office investment volume respectively, in Q2, CBRE said.

Meanwhile, neighbourhood malls remained keenly sought after, especially by property funds seeking value-added investments.

Also read: Neighbourhood shopping malls flourish in Hong Kong's tight spaces

“During the quarter, the retail podium of Tehe Parkside in Tseung Kwan O was acquired by Wang On Properties for $780m ($23,953 psf). Wang On subsequently sold a 50% stake in the property at cost to KKR,” CBRE said.

Elsewhere, K&K Property purchased properties on 21-27 Ashley Road in Tsim Sha Tsui for $1.76b or $18,091 psf of the developable floor area. “The sites are likely to be amalgamated and redeveloped into a Ginza-type commercial building,” CBRE explained.

Overall, total retail property investment volume rebounded 46% QoQ to $6.1b, whilst capital values edged down 0.1% QoQ.

Despite the reintroduction of the industrial revitalisation scheme, investment volume in the sector remained subdued, totalling $3.2b which is said to be just 51% of the quarterly average recorded since Q4 2017.

Also read: Revitalisation scheme relaunch could drive industrial property values by up to 149%

“Several vendors adopted a more aggressive stance by taking into account potential capital value growth from the scheme, whilst buyers remained cautious, leading to a wider expectation gap,” CBRE explained.

The largest industrial deal saw Laws Group purchase 822 Lai Chi Kok Road in Cheung Sha Wan for $1.4b or $9,533 psf. Laws Group already owns the D2 Place portfolio nearby, CBRE added.

Despite continued uncertainty over the direction of US interest rates, fundraising by regional property funds is expected to continue driving purchasing activity over the remainder of 2019. CBRE expects to see a focus on medium-sized projects priced between $500m and $1b, and anticipates a longer investment horizon.

“En-bloc Grade A and Grade B office buildings remain the most attractive asset types, but investable stock remains limited. The expectation gap between vendors of such assets and buyers remains generally significant,” the firm said. “This may spur interest from individual investors in strata-titled offices in core submarkets, given low vacancy and potential for stable income.”