Boston, MA -- (SBWIRE) -- 06/05/2012 -- According to our most recent round of in-country interviews, which were conducted in December 2011, rents in Hong Kong could see a subdued 2012 in all commercial sub-sectors with an overall decline in rents predicted in the short term. For offices in particular, there is a consensus that economic uncertainty is spreading from the eurozone to the Asia Pacific region, leading to caution among investors and an overall slower market. However, moves by the government to ramp up development and create a new Central Business District (CBD2) in East Kowloon may keep office rents from decreasing for any prolonged period.
Retail rates in Hong Kong have the potential to remain positive, as a result of continued buoyant tourism from Mainland China and the continued expansion of international retailers into the region. Hong Kong is historically a key regional city for retail development. Industrial demand may experience a temporary fall, as external trade has decreased to the US and eurozone amid debt fears in those regions. However, logistics companies are increasingly looking towards emerging markets for their property, and this may help to prevent declines becoming too drastic.
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Our forecasts for 2012 GDP growth in Hong Kong are currently far below consensus, at 3.0% year-onyear (y-o-y) compared to estimates of 4.5%. A rebound in government spending and private consumption (despite decelerating) helped to bolster 2011's estimate of 5.0%. But we maintain that export performance will continue to be a drag on growth, as will the continuation of a correction in the residential real estate market.
Key Opportunities In The Real Estate Market:
- Hong Kong remains at the top of a number of lists for real estate investment and rental levels, particularly in the office sub-sector. Its existing reputation could help to keep rents from dropping too far or too quickly.
- While office rents are expected to fall overall, there are some reports that levels in the Causeway Bay area are expected to see an increase over 2012. That and the proposed development of Kowloon East's CBD2 should increase grade A space in the long term, maintaining Hong Kong's status as a global financial centre.
- Retail sales are likely to remain buoyant in the wake of a correction in the office market, owing to the continued influx of tourists from the mainland.
Key Risks To The Real Estate Market:
- The global economic uncertainty is far from over, and a cautious overall market will stem investment, particularly from overseas, throughout 2012. The number of new developments are likely to decrease and the market may well get worse before it gets better.
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