Commercial property sales crashed 57% in Q3

It might surpass 2016 as the worst year in terms of transaction volumes since 1997.

The current year might just take over 2016 as the worst year ever in terms of commercial transaction volumes as sales collapsed by 57% in July and August, following a 48% YoY decline in the first six months of the year, a report by Savills Hong Kong revealed. This brings the current year total to 3,368 sold units—a 50% decline over the same period in 2018.

A volatile economic and social backdrop saw investors shift their interest overseas for fresh opportunities, targeting Singapore, Sydney, New York and Los Angeles. Singapore has become the top spot for HK investors with outbound commercial investment skyrocketing by 4,915% YoY to reach $10.3b in Q3, a record high for any quarter over the past three years. In Sydney, investment volumes soared 490% YoY to $3.8b.

“The few transactions recorded in the commercial investment market last quarter were either family sales, or long-term holdings of over 20 to 30 years which have seen substantial gains. The outlook for the sector looks grim with no immediate resolution to both internal and external issues,” said Simon Smith, Senior Director of Asia Pacific Research for Savills.

Also read: Prime street shop rents tumbled 15.4% in Q3 as vacancies mount

The sale of a 58.83% undivided share of Winway Building on Wellington Street, neighbouring Yung Kee Restaurant, for $780m was one of the very few major office deals in Q3. 

Another Grade B office transaction in Wanchai saw the landlord lowering the asking price by 25% from $15,000 to $11,300 per square feet (psf) until a deal could be struck. Savills however commented that since the landlord bought the premises for around $3,200 psf over 10 years ago he would still gain a HK$20m profit for the 2,500-sqft premises.

The Kowloon office market also saw potential buyers looking for a 15% to 20% discount. One notable deal in the market in Q3 was the sale of units 1506-08 of Concordia Plaza in Tsim Sha Tsui East for $80.8m, or an average price of $14,600 psf, a 20% discount to the original asking price.

Also read: Kowloon office leasing demand weakens further in August

An already weak market sentiment drove landlords to soften their asking prices but there is still a gap compared to what potential buyers’ ask. This resulted to Grade A office prices declining 2.9% in Q3.

“Under such circumstances, some landlords have softened their stance on asking prices, but discrepancies with buyers’ pricing levels are still significant, so volumes may remain low for some time: some Shun Tak Centre landlords were reported to be willing to listen to offers of around $35,000 psf, compared to previous asking prices of $38,000 to $40,000 psf, but with investors’ highest offers only at around $30,000 to $32,000 psf for the moment, deals were scarce,” the report noted.

In the retail sector, street shops saw an increasing number of vacant shops even with rental reductions, in particular in core retail areas where protests have been most common. But whilst prime street shop rents declined by 17% in Q3, sale prices only adjusted by 5% over the same period.

Causeway Bay prime street shop prices recorded a 5.8% QoQ decline in Q3, followed by Tsim Sha Tsui with a 5.3% QoQ price reduction. Central prime street shop prices also fell 4.1% QoQ whilst Mong Kong shop prices slipped 3.2% QoQ over the same period,

“For example, a pharmacy agreed to lease a 1,000 sqft street shop on Percival Street in Causeway Bay for $200,000 per month in August, which was already a 35% discount to the rent being paid by another pharmacy next door (a 1,000 sqft lease signed in February), but the prospective tenant finally decided to back off given the increasingly difficult business environment and the shop remains vacant,” reported Savills.

Given the environment, there were very few transactions closed during the period. A street shop at 105 Austin Road in Jordan was sold for $32.8m, which was the same price the vendor bought the shop for back in 2011.

Despite the frail commercial sector conditions and after rejecting all five bids for the Kai Tak 4C Site 4, the government will launch the topside commercial development of West Kowloon Terminus for tender in Q4 as one single site, with a tender closing date of 22 November.