Theories of Relativity Colliers' managing director Nigel Smith breaks down the year in property so far.

Colliers' managing director Nigel Smith breaks down the year in property so far.


Sentiment in Hong Kong runs completely differentl­y,” states Colliers Internatio­nal Hong Kong's managing director, Nigel Smith. He is referring to the local property market's habit of zigging when the rest of the world zags, making it one of the most difficult-to-forecast locations on the globe. With a trade war in full swing, slowing worldwide economic growth and political turbulence clouding the issues, Smith, a 30-year industry veteran in Hong Kong since 1990, offers some midyear reflection, and why things aren't really as bad as they seem.

The Elephant on the Streets

Hong Kong is a sentiment-driven market if ever there was one. At the end of 2018, the popular wisdom was that the SAR was heading for a major (some said overdue) correction in all sectors, prediction­s that have since been revised in wake of price gains in the first half of 2019. Residentia­l prices have gained 10% this year and there's very little debt in the residentia­l market, an enormous difference from the crisis in 1997. Roughly 60% of Hong Kong home owners have little to no debt. Sales have shown signs of picking up and hints about no new interest rate hikes could improve that all-important sentiment. Colliers was always confident the residentia­l market would bounce back and “still feel the residentia­l market will finish up this year. Locals are still buying; they put money into bricks and mortar. It's a volatile market and if it drops slightly the investors will come back,” says Smith. But of course, sentiment can be easily shaken—last year's stock market “plunge” is an ideal example of just how easily—and the city's recent mass (and internatio­nally covered in all media) protests are another element that could make investors nervous. But even that is unlikely to send major occupiers and purchases away for good. “It has put decisions onto a longer time frame—maybe six months at the moment— but talking long-term, the belief in Hong Kong's place, in China, in the Greater Bay Area, in Asia, in the world, is still very much there. But yes, people are nervous,” Smith admits. By the same token, Colliers' own occupier survey of MNCS and Asian corporates indicates fully half still have expansion plans for the coming years.

The Real Challenges

A bigger threat to Hong Kong’s markets is the ongoing Us-sino trade war and the looming commercial supply crunch. No matter how good a sign the recent “G2” truce (no new tariffs but also not removing the ones implemente­d in the last year) may be, the war is going to take a long time to recover from. “The problem is that they haven’t come to an agreement, so until that happens we’re going to be in a state of flux. We are seeing companies ‘hold’ certain strategies: it might be expansion, it might be a move. Internatio­nal investors will take just a little longer to decide,” theorises Smith. But once again bucking the trend, in Hong Kong the mood is relatively upbeat. “There’s a lot of internatio­nal capital out there that has to be deployed. Whether [it’s] deployed in Hong Kong is the question. The issue is they’ll look at returns or the IRRS, and they won’t match … The local market is still very active, and they’re not as concerned with the trade war. The industrial market is incredibly resilient, even with this trade war. There’s so little stock in that market [because of] the industrial revitalisa­tion scheme and an increase in air freight.”

Also relatively strong is the flounderin­g retail sector, where perception is key. High street shop vacancies that make Hongkonger­s anxious are average elsewhere, the major malls are stable and competitio­n among F&B operators is still heavy. Even with retail sales volume dips and falling rents, Hong Kong still ranks ahead of spots like Fifth Avenue, Bond Street and Ginza. “I think the malls this year have turned a corner; they’ve recorded an uplift in sales. So even if they come down a bit, we’re still ahead of everyone else,” Smith points out.

On the office front, a typically low 2% vacancy rate is keeping rents stable, but decentrali­sation continues, with more and more blue chip occupiers heading to Kowloon East and Taikoo Place. With no new supply in Central until at least 2023 (when the Murray Road car park and Hutchison House redevelopm­ents are completed) and Site 3 once again being re-evaluated, commercial landlords are reconsider­ing how they operate. Again, it’s about sentiment. With alternativ­e districts attracting more tenants, “we’ve seen a change in landlords’ attitudes. They’re taking longer leases ahead of 2023 to lock in tenants, and they’re comfortabl­e accommodat­ing the right tenant. They’ll be more flexible on renewals but rents aren’t really falling,” notes Smith.

Ultimately, Smith is confident Hong Kong is well-positioned going forward. It won’t necessaril­y be easy, but in the long run, the city will remain an investment destinatio­n. Admitting 2018 and 2019 so far have been eventful, Smith finishes by citing history for the future. “We shouldn’t use the word ‘blip’ out of context but if you step back far enough and look at rental and price trends since 1990, when I first came here, and today? It’s just a straight line up,” he says, gesturing towards the ceiling. “There have been two major downturns and from a real estate perspectiv­e, we’re in our fifth technical downturn since 2008. No one’s even noticed.”

 ??  ?? 高力國際常務董事施禮­賢Colliers’ Managing Director Nigel Smith
高力國際常務董事施禮­賢Colliers’ Managing Director Nigel Smith
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