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HONG KONG

JLL: Interest rates will limit significant upside in capital values in 2016


​HONG KONG, 9 December 2015 – The investment market has seen improvements this year, driven by increasing investor demand for commercial properties. The total value of investment (over HK$ 100 million) across the commercial and industrial property sectors amounted to HK$64.8 billion, up 12% compared to 2014.

In the office sector, the market saw strong interest from mainland Chinese companies and insurance companies for en-bloc office buildings for their own use. The continuing recovery in the office rental market also rekindled investment interest in office market. From January to November, a total of 55 office transactions over HK$ 100 million with a total consideration of HK$35.2 billion were registered, up 25% and 67.6%, respectively, from 2014 levels.

Investment activity in retail and industrial properties continued to focus on non-core and emerging areas. Given the correction in the rental market, sales of retail properties over HK$ 100 million dropped 36% y-o-y to 55 transactions, while total consideration was down 13.4% y-o-y to HK$19.9 billion.

For 2015, capital values of Grade-A offices grew by 4.3% while those of High Street Shops slumped 21.5%. Capital values of industrial properties grew by a more moderate 4.7% in 2015 after reaching record high levels.

"Looking into 2016, the anticipated rise in interest rates will limit any significant upside in capital values," said Joseph Tsang, Managing Director at JLL. "Still, there remains a large amount of mainland Chinese capital sitting on the sidelines waiting to be deployed. Furthermore, en-bloc office investments made by insurance companies in recent years, has spurred renewed interest from other field players. We expect capital values of Grade-A offices to grow by another 0-5% in 2016 but prices of high street shops will likely slide by a further 10-15%. The capital value of warehouses will go up 0-5%."

Hong Kong Non-Residential Investment Indicator – % Change

Submarket / Sector

Capital Values*

(2015)

2016 Capital Values Forecast
Prime Office
Centralp4.5%p0-5%
Wanchai/Causeway Bayp3.9%p0-5%
Hong Kong Eastp2.9%p0-5%
Tsimshatsuip3.6%p0-5%
Kowloon Eastp5.6%p0-5%
Overallp4.3%p0-5%
Prime Retail
High Street Shops▼21.5%▼10-15%
Prime Shopping Centres▲0.7%N/A
Warehouse
Warehouse▲11.1%▲0-5%
Flatted Factories▲6.4%N/A
I/Os▲4.7%N/A

*Preliminary

 

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