Commercial volumes continue to decline as economic recession, virus uncertainties and local political turmoil all weighed on buyers’ decisions.

• The impact of the virus in terms of social distancing and business disruption is taking its toll on the local property market with commercial volumes declining by 70% y-o-y in Q2/2020, with a majority of deals (82%) closed at HK$30 million or below.  New World has continued to sell down non-core assets with over HK$6.6 billion of asset / income shares offloaded in 1H/2020.
• Potential purchasers in the office market were mainly local investors and old families sitting on cash looking for discounted stock, with end-users, Mainland corporates as well as investment funds all inactive.  For the few deals closed in core areas at 20%+ discounts we note that some assets were held by Mainland companies now facing financial distress.
• While some veteran retail landlords are facing financial difficulties due to over-expansion during the past few years, there are newcomers who see this market downturn as a rare opportunity and have purchased street shops in less prime areas at big discounts.
• Persistently low interest rates as well as low levels of near-term commercial supply remain the two supporting pillars of the commercial market.  While the rebounding stock market and robust IPO pipeline will likely boost office demand over the next few months, travel relaxations as well as incentives from both government and businesses may reinvigorate retail interest among both local shoppers and visitors.
• Nevertheless, a deepening economic recession, local political uncertainties, macroeconomic turbulence as well as the possible resurgence of the virus are all factors which may negatively impact property investment sentiment over the next six months.