Home, office, retail space feared to rise uncontrollably in the next 3 years

Housing supply to grow 50%.

The Rating & Valuation Department has released the preliminary findings of its annual “Hong Kong Property Review” report.

According to a research note from Barclays, depending on whether one adopts a forward- or backward-looking perspective, there is good and bad news, in its view.

The good news is that the vacancy rate contracted to 3.8%. The bad news, however, is that supply is rising across all three asset classes.

Here's more from Barclays:

The good news is that Hong Kong’s residential vacancy rate continued to contract in 2014, falling to 3.8% from 4.1% in 2013. At an overall vacancy rate of 3.8%, this is back to the 1997 level.

Given that some units completed during the year cannot be physically occupied due to the handover or renovation of properties, the Rating & Valuation Department also provides a figure for units that have not yet received their certificates of compliance or consent to assign.

Adjusting for this figure, we estimate that the vacancy rate for existing units was also lower at 3.2%, from 3.4% in 2013, but that it remains higher than the 1997 level of 2.5%.

The bad news is on the supply side. Across the residential, office and retail property classes, supply is likely to rise in the coming three years.

Housing – The Rating & Valuation Department estimates new private housing completions for 2015 and 2016 of 14,010 and 20,140 units, respectively. If we were to take the next two years’ average supply of 17,075 units, this would represent an increase of 50% compared to the last five years’ average completions of 11,396 units.

Grade A office – For 2015 and 2016, the Rating & Valuation Department estimates new Grade A office supply of 1.8mn sf and 1.6mn sf, respectively. This equates to an average supply of 1.7mn sf for the next two years. Compared to the past five years’ average completions of 1.1mn sf, this is a similar increase of 52%.

Commercial – The increase in commercial (or retail) space is perhaps the most notable. For 2015 and 2016, the Rating & Valuation Department estimates new completions at 1.1mn sf and 1.3mn sf, respectively, taking the next two year’s average completions to 1.2mn sf. Compared to the last five years’ average supply of 0.6mn sf, the increase in commercial space is 92%.