Commercial real estate transaction volumes plunged 64% to $37.1b in Q1 as Chinese investors retreat

China Energy Reserve & Chemicals Group pulled out of a deal to acquire Li Ka-Shing's The Center in Central.

Hong Kong’s property market started the year on muted footing as commercial real estate transaction volumes worth more than US$10m plunged 64% QoQ to $37.1b in Q1, according to a report from CBRE Research.

This comes as several high-profile Chinese investors slowed down their acquisition spree and pulled out from deals due to a shortage in liquidity and were replaced by local investors instead such as when China Energy Reserve & Chemicals Group abandoned the deal to purchase Li Ka-Shing’s The Center and allocated its stake to another Chinese investor and a consortium of local Hong Kong investors.

“Major Chinese investors are expected to be less conspicuous this year, opting to focus on relatively smaller lump sum deals for Grade A offices for investment or self-use, subject to their ability to move capital offshore,” CBRE noted.

Office deals accounted for more than half (67%) of total transaction volume, industrial (21%) and retail (13%) in Q1.

Transactions in office spaces buoyed the quarter’s transaction volumes after hitting $24.5b in Q1, the second highest on record after Q4. The largest deal involved the sale of 18 King Wah Road in North Point for $9.95b and the $2b purchase of C-Bons International Centre in Kwun Tong.

Also read: Office net absorption hits 160,900 sq ft in February

Purchasing activity in the retail sector, buoyed by the recovery in inbound tourism, was split between core and non-core districts. Notable transactions include Fulum Group’s purchase of four floors and 37 parking spaces in Hsin Kuang Centre in Wong Tai sin for $906m. A British property fund also bought shop units at The Galleria 9 QRC, Central for $670m.

“Although neighborhood shopping malls are still the main focus amidst solid local consumption, CBRE Research forecasts stronger demand for assets in traditional core districts in the expectation of higher yields when rents recover.”

The industrial sector also had its fair share of notable deals including the sale of Lai Sun Yuen Long Centre for $1.4b to an investment group led by CSI Properties. However, demand for subdivision and re-sale may weaken amidst revisions to the minor works scheme prompting investors will turn to en-bloc premises.

Photo from iqremix from Canada - Hong Kong Central District, CC BY 2.0