With Hong Kong introducing a clampdown on speculation on the residential market, investors are turning their attention toward commercial property and the influx of money into the region is driving fears that conditions will fuel a property bubble.
Retail and office space yields are currently at record lows and tenants are paying some of the highest rates in the world for space.
Some investors have decided to put their money into more modest office spaces, given the current market conditions. Another choice for investors is car parking spots, which is not as strange as you may think; analysts say that prices for these necessary spaces have more than doubled in some areas.
Investment demand is making a definite shift away from residential properties in favor of the commercial holdings.
According to figures released by Credit Suisse, office yields are down to three per cent. Retail yields have hit close to 2.5 per cent. In the five year period ending in mid-2009, yields were a much healthier 4.5-5 per cent.
Tenants looking to rent Hong Kong office space are looking at record levels of HK USD 150 per square foot. This rate has held steady for some time, according to John Saunders, an executive with specialist property investor firm MGPA.
In Singapore, rents had hit a high of SUSD20 per square foot per month and have dropped to a more reasonable level of SUSD10-SUSD12.
CBRE’s Head of Research in Hong Kong, Ed Farrelly, points out that lack of supply is another issue affecting the commercial real estate market.
He warns that if the government introduces a stamp duty on foreign investment on commercial property to avoid a property bubble, it would send the wrong message to potential investors and would effectively drive them away from the market by encouraging them to look to other places for buying opportunities.
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