Report: Hong Kong's coronavirus property market to mirror SARS but with silver lining opportunities

 In the wake of the COVID-19 coronavirus strain outbreak, Hong Kong’s property market can expect to see a similar cycle to the 2003 outbreak of SARS, with a steep downturn persisting until midway through the year, according to a new local market report by Colliers International.

The report outlines that the outbreak will likely create significant price corrections in the retail and hospitality sectors. This is a result of the further weakening of the travel and tourism sectors, which were already at a low following the city’s social unrest. The closure of border crossings and travel bans are going to throttle inbound tourism, and as Hongkongers minimise their outdoor exposure domestic consumption will also plummet.

“Despite positivity at the start of Q1, the Coronavirus is compounding Hong Kong’s recent problems – social unrest and US-China trade tensions – and preventing growth activity such as additional IPO launches, business expansion in Hong Kong and cross-border trade due to travel restrictions,” said Rosanna Tang, head of research, Hong Kong and Southern China, Colliers International.

The silver lining is that online retailers and delivery services should benefit during this period, as people keep indoors. The report recommends that retailers implement online to offline strategies, diversify their revenue streams.

There are also opportunities for tenants to negotiate for significantly adjusted rental fees. Landlords should be providing short term rental relief measures to support retailers and ensure reasonable hygiene standards in shopping malls through good ventilation and sterilisation.

Furthermore, office leasing activity is expected to stay slow, forcing rents to fall sooner, but not more, than originally anticipated.

“For occupiers, we expect the challenging business situation to persist and we reiterate our forecast that average Hong Kong rents will fall by 8% YOY in 2020, and over 13% in Central during 2020, most within H1. For occupiers wanting a Central location, now is a good time to move given recent increases in the vacancy rates. For landlords, flexibility is important. They should look at leasing incentives and discounts and target occupier sectors whose businesses are likely to remain stable despite the virus, such as insurance, biotech and pharmaceuticals,” said Fiona Ngan, head of office services.

Investment buyers will have the opportunity to investigate distressed investment assets. The report says the best targets for treasure hunting will be the strata-titled space and en bloc assets in fringe areas, including Kowloon East. Hotels could also provide strong rebound opportunities.

Antonio Wu, deputy managing director for capital markets, Asia said, “With capital values further declining due to the Coronavirus, there is an opportunity for new investors to enter the market as buyers start to see more prime properties become available at heavily discounted prices.“

Justifying the generally grim outlook, the study specifically cites that Oxford Economics has recently lowered its 2020 forecast for Hong Kong’s real GDP growth from −1.4% to −2.8%. It has also cut its 2020 estimate for China from 6.0% to 5.4%.

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