Singapore Marina Bay business district at night.
The Royal Institution of Chartered Surveyors (RICS) Global Commercial Property Monitor for the fourth quarter of 2014 suggests that while economic indicators show a decline in the Hong Kong economy, growth is expected to rise steadily this year.
In Hong Kong, the RICS Occupier Sentiment Index (OSI) decreased slightly from +4 to -3 during the last quarter. The RICS Investment Sentiment Index (ISI) remained negative at -3. Demand from tenants continued to increase in both office and industrial sectors, while retail saw a sharp decline.
Over the next three months, rents in the office and industrial sectors are projected to increase, while retail rents are expected to decrease. The supply of commercial property for sale increased across all sectors, with retail units experiencing the most significant rise. Over the next year, the capital value of prime office space is forecasted to grow by 4%, and prime industrial space by 3%. No growth in capital value is predicted for prime retail space.
In mainland China, moderate economic growth continues to impact commercial property sentiment. As a result of moderate occupier demand and increased available space, rental value expectations have become negative.
Investment sentiment in Singapore is weakening. Strong rental growth is expected in the office sector over the next three months, but rents in the industrial and retail sectors are expected to decline.
In Japan, the short-term outlook remains positive despite significant economic challenges. Tight market conditions are expected to continue to drive up rents, with strong increases anticipated across all sectors over the next three and twelve months.
RICS Senior Economist Andy Wu stated: “Hong Kong’s economic position is weaker compared to other Asian markets. Growing uncertainty surrounding the political climate and a lack of economic growth will likely lead to low occupier activity and reduced capital flow into the city this year. Consequently, property values are declining as occupiers and investors remain cautious about market prospects.”
“Therefore, the overall property performance reported in the RICS Q4 report is not unexpected. Sentiment has been low, mirroring the underlying economic fundamentals. While it’s essential to consider the broader market, it’s worth noting that certain sub-sectors, particularly retail, are still struggling. The Q4 decline highlights the fragility of the retail sector, and we expect this to persist until there is a sustained increase in consumer spending growth.”
“The Singaporean occupier and investor markets are experiencing similar trends, with commercial property performing poorly.”
“As economic challenges persist in China throughout the year, the performance of commercial property markets between Tier 1 and lower-tier cities is likely to diverge. The economic slowdown continues to hinder occupier activity, resulting in stagnant rental values. Interestingly, both SMEs and larger firms are hesitant to commit to new space, delaying expansion plans or seeking to downsize to minimize risk and costs. This reluctance has impacted activity and contributed to a surplus of available space in many Chinese cities.”
“Japan continued to see positive performance in Q4. This upward trend in the commercial property sector contrasts with the general economic outlook reported in business surveys and other economic data. Despite lingering uncertainty surrounding the economic outlook, investors continue to purchase properties in Japan’s major cities, particularly Tokyo and Osaka. It remains to be seen whether the Japanese commercial property market can sustain this positive performance amidst growing pessimism about the economy.”
*RICS Occupier Sentiment Index (OSI): The OSI is an unweighted average of readings for three aspects of the occupier market, measured on a net balance basis: occupier demand, the level of inducements, and rent expectations.
RICS Investment Sentiment Index (ISI): The ISI is an unweighted average of readings for three aspects of the investment market, measured on a net balance** basis: investment enquiries, capital value expectations, and the supply of distressed properties.
**Net balances: Net balance percentages, or scores, are determined by subtracting the number of respondents reporting ‘down’ from those reporting ‘up.’