Downward trend persists in Hong Kong, UAE and Japan outperform

PR Newswire

HONG KONG, May 5, 2014 /PRNewswire/ -- The Q1 2014 RICS Global Commercial Property Monitor shows, on balance, a pickup in commercial real estate sentiment across the globe, while Hong Kong and other certain regions struggle against a more challenging macro backdrop. Globally, the longer term outlook is suitably bright for both occupier and investment markets, as evidenced by the Monitor's twelve month indicators. Healthy rental and capital value gains are expected during the course of 2014.

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Hong Kong shows a continuation of the downward trend established during the early part of last year, as occupier demand slips further and investment enquiries decline, resulting in negative Occupier Sentiment Index (OSI) and Investment Sentiment Index (ISI) values. The forward-looking indicators, namely rent expectations and capital value expectations, have fallen to -12 and -17 respectively. In China, headline activity in the occupier market appears to have turned relatively flat, while progress on the investment side is still seeing a modest uptick.

The UAE and Japan are once again amongst the front runners, as momentum continues to build at a healthy rate. Indeed, the OSI and ISI stand above 40 and 50 respectively, for these two nations.

Upbeat results were also returned from contributors from the US, New Zealand and Singapore real estate markets, with both the OSI and ISI readings still comfortably signaling improvement. The robust figures are indicative of growing confidence, which has been fairly consistent throughout the last few Monitors.

RICS Senior Economist Andy Wu, said: "Our Q1 sentiment survey results show occupier market activity and rental movements, particularly in mainland China and Hong Kong remain relatively constrained by the fact that 2014 is a year of faltering economic recovery. Moreover, it remains the case that Japan is outperforming the rest of the region, and Singapore has shown continued improvement. Interestingly, we continue to see the majority of companies in some of the major Asian markets adopt a wait and see approach towards expansion and relocation because of the current environment of continuing economic uncertainty, which consequently plays a critical role in delaying their take-up decisions. This has led to static rents in these markets over the past few quarters. We believe uncertainty surrounding China's economic outlook and other geopolitical and economic challenges in this region will likely continue to dominate sentiment, activity, and rental value movements through the reminder of the year.

On the investment front, there are still many international investors and major local players actively tracking potential investment opportunities in Asia but in our view, it is unlikely we will see a large number of investment transactions in the near term until economic factors are perceived to have fundamentally improved and geopolitical risks are being reduced. Meanwhile, a growing number of investors have viewed the region with falling optimism. It remains to be seen as to whether this marks the start of declining attractiveness to international and regional investors.

It is worth highlighting the one market which stands out in Q1 again in terms of the rental and capital value growth is Japan. The demand for space on the back of still-positive sentiment has continued to create activity in all sectors in major Japanese cities. While activity in the occupier market in Hong Kong remains slow, high quality space in the district, namely Central, remains in demand and is often in short supply. This scarcity of space and market dynamics will likely continue to support overall average rents. In China, a large number of occupiers are still pushing back leasing decisions as a consequence of ongoing economic headwinds, weak demand levels and cost-consciousness. As investors and occupiers continue to factor in concerns over the economy and the general health of the commercial property sector, it is unlikely to see any significant pick up in activity in the immediate future."

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Notes to Editors:

RICS Occupier Sentiment Index (OSI): OSI is constructed by taking an unweighted average of readings for three series relating to the occupier market measured on a net balance basis; occupier demand, the level of inducements and rent expectations.

RICS Investment Sentiment Index (ISI): ISI is constructed by taking an unweighted average of readings for three series relating to the investment market measured on a net balance basis; investment enquiries, capital value expectations and the supply of distressed properties.

Net Balances: Net balance percents, or scores, are calculated by subtracting the numbers of respondents reporting 'down' from the number who reported 'up'.

About the Survey: Available at www.rics.org/economics, the RICS Global Commercial Property Survey is a quarterly guide to developing trends in the commercial property investment and occupier market.

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