Commercial volumes have declined dramatically with activity dominated by bargain-hunting investors looking for distressed assets which remain hard to come by.

• Coming as it has, during a period of trade tension and social unrest, COVID-19 has piled yet more pressure on the local economy and weakened prospects for the local property market. Commercial transactions plunged by 36% YoY in January 2020 as a result, following a weak Q4 performance.
• Only bargain-hunting investors were left in the office market looking for deeply discounted assets, with most end users refraining from making any purchase decisions due to worsening business prospects. Nevertheless, strata-title office landlords, who tend not to be very highly geared, were more prepared to cut rents to retain occupancy then sell assets at deep discounts.
• The retail investment market, one of the hardest hit sectors only saw a handful of deals cross the line in Q1. Investors were looking for even larger price discounts (30% to 50% compared to previous peak) with even fewer landlords willing to entertain. Nevertheless, as the virus spreads globally, and with stricter controls on borders and social activities leading to a further deterioration in retail sales, retail landlords found it hard to retain tenants and sustain occupancy even with heavily discounted rents and generous rental concessions.
• As the coronavirus has become pandemic its containment looks likely to take much longer than SARS (which lasted for around six months, ending in July 2003). While we have discounted a V-shape rebound, prices may find some support from low interest rates, emergency fiscal measures, limited commercial supply and very early signs of an economic turnaround in China.
• Prospective office buyers are tending to hoard cash to weather any possible prolonged downturn in their own businesses, making them ultra-cautious when making investment decisions. Retail investors meanwhile are also paused, not just because of the current situation, but also because the retail market may be about to undergo another structural shift after enjoying years of success supported by Mainland spending. Looking ahead, e-commerce looks set to be a major beneficiary from the outbreak while vacancies will present the challenge of finding new tenants and an updated and relevant trade mix.