RICS (Royal Institution of Chartered Surveyors) recently published the Q3 2014 RICS Global Commercial Property Monitor. The report indicated thatChina's slowing economy has had weighed on economic activity inAsia. Moreover, escalating political tension in Hong Kong has also agitated financial markets and weakened the city's economic performance.
In Hong Kong, the RICS Occupier Sentiment Index (OSI) edged into neutral territory following Q2's reading. According to the Q3 findings, tenant demand rose at the headline level and specifically within both the office and industrial sectors. Despite availability outpacing demand, a turnaround in occupier demand appears to be filtering through into rental expectations. Moderate rental growth is expected over the coming quarter inHong Kong. Furthermore, the RICS Investment Sentiment Index (ISI) improved over the quarter and now remains more or less in neutral territory. Nevertheless, the ongoing Occupy Central movement that has taken place since late September has continued to add pressure to already weakened investor and consumer confidence. The movement is likely to hamper commercial real estate investment activity in the near term.
China's economy remains uncertain. The OSI remains in negative territory and albeit to a lesser extent than previously seen. The ISI posted a further modest decline in Q3 and remains negative. Investor demand is continuing to increase, albeit very modestly. More notably, enquiries from overseas actually appear to have dipped over the quarter. InSingapore, recent economic data show Q3 GDP growth figures were slightly weaker than anticipated. The OSI improved marginally from Q2. Sector breakdown indicates that robust office demand was accompanied by falling retail demand and flat industrial demand.
Japan continues to exhibit the strong momentum, and this is reflected in the RICS OSI and ISI indicators.. Strong results were also recorded for the UK andNew Zealand, with both improving on an already healthy performance last quarter. The latest monitor also shows solid momentum in the US, UAE andHungary, particularly on the occupier side, with meaningful growth in tenant demand placing upward pressure on rental expectations at the twelve month horizon.
RICS Senior Economist Andy Wu, said: "Despite the economic headwinds being experienced inAsia, many commercial property markets here displayed a certain degree of resilience in Q3. Investor interest is still predominantly focused on the prime market throughout much ofAsia and reflecting the ongoing effects of the economic uncertainly, the flight to quality will likely favour the primary end of the market, especially good quality assets inSingapore and Tokyo. As such, we believe the prospects for prime property are better than secondary with increased polarisation likely to be a key trend in 2015 in these cities.
"According to our survey results, Hong Kong commercial property performance stabilised in Q3 with a marginal pick up in key headline numbers. However, the ongoing anti-government movement has casted a dark cloud over the outlook for the city's commercial property sector. Uncertainty surrounding the outcome of political and economic changes will undoubtedly dominate sentiment and value movements for some time to come. The current market sentiment inChina is still subdued as a result of the slowdown in economic activity. Diminished consumer and business confidence should continue to filter through to the occupier and investment markets. While the government's continued liquidity injections into the banking system could potentially increase the availability of credit and reduce borrowing costs, we believe a sustained market recovery can only be underpinned bya better indication of the economy's growth.
"The Q3 figures confirm that the Japanese commercial property market is easing a little in terms of confidence but the country remains a strong market buoyed by positive market sentiment. That said, the deteriorating economic picture will likely be reflected in the performance of the commercial real estate sooner or later. It will now be interesting to see whether the country can maintain their lead over other major Asian markets."
