Capital value of commercial property set to fall by up to 10 per cent this year, with office and shop rents also slipping, a property consultancy says
Hong Kong is facing a commercial real estate crisis, with small and medium-sized developers as well as banks under increasing pressure as capital values slide amid lethargic leasing activity, according to a property consultancy.
The capital value of commercial property was set to drop by “a further 5 to 10 per cent” this year, an agent said. Selling commercial properties at such prices is not “practical or realistic”, the agent added.
That meant the looming crisis could spread to the residential property market, particularly the luxury segment, the agent said.
“The majority of the commercial real estate investors or owners also own luxury residences,” the agent said on Wednesday. “Should they, for whatever financial reasons, become under pressure from banks, the only way to get cash would be to sell residential properties.”
The city’s commercial landlords are dealing with high vacancy rates in both the office and retail segments, putting pressure on rents.
In the first half of the year, overall office vacancies rose to 13.6 per cent from 13.2 per cent in the preceding six months. Prime office rents declined by 2.5 per cent in the January to June period, following a 9.1 per cent drop in 2024, the consultancy said. Since their 2019 peak, rents for the segment have retreated by 41.4 per cent, the consultancy said.
A further 5 per cent decline in office rents is likely this year, another agent said.
The retail segment fared no better, with the vacancy rate in prime shopping centres hitting a record high of 10.5 per cent at the end of June, as rents slipped 3.4 per cent. High street shops saw vacancy stabilising at 10.5 per cent, while rents dropped 2.3 per cent, another agent said.
With about 600,000 sq ft of new prime retail space scheduled for completion in the second half, vacancy rates in prime shopping centres are likely to rise, dragging rents down by between 5 and 10 per cent this year, the agent said.
With the commercial real estate slump lasting for nearly six years now, some of the city’s developers are feeling the pain.
On Tuesday, Hong Kong developer Grand Ming Group warned investors that it had yet to repay a HK$4.8 billion (US$611.4 million) loan. The company reported that it had breached financial covenants under its loan facilities and said its gearing ratio had surged past 200 per cent.
The provider of construction services has developed many property projects, including The Grands in To Kwa Wan, The Grand Marine in Tsing Yi and Cristallo in Ho Man Tin. It posted a loss of HK$292.1 million for the year ended March 31, swinging from a net profit of HK$298.5 million a year earlier.
Grand Ming is the second developer to default on its loans, after peer Emperor International Holdings said it had outstanding borrowings of HK$16.6 billion at the end of June.
Emperor International reported that its full-year loss of HK$4.74 billion for the year ended in March was more than double the HK$2.04 billion a year earlier. The group controlled by entertainment mogul Albert Yeung Sau-shing – one of Hong Kong’s richest tycoons and a backer of some of the city’s biggest Cantopop stars, including Joey Yung Cho-yee, Leo Ku Kui-kei and Nicholas Tse Ting-fung – also disclosed that bank borrowings totalling HK$16.6 billion were overdue and some associated loan covenants had been breached.
The first agent said that while banks were aware of the situation and likely to work out arrangements with borrowers, the situation could change depending on the banks’ performance.
“I think the banks’ attitude is that they will try to live with the situation for a while,” the agent said. “Whether or not this attitude will continue into the second half of this year depends on the banks and their financial accounts.”
Banks’ first-half earnings reports, due soon, will provide an indication.
“I feel a little bit worried about the banks,” the agent said.
