Occupier demand continued to fall with the retail segment losing significant momentum, although office and industrial occupier demand remained stable. With falling tenant demand and rising supply, rent value expectations at the three month time horizon have turned more negative.
Investment sentiment, as reflected by the Investment Sentiment Index (ISI), also remained in negative territory in Q2. RICS believes the growth trajectory is likely to continue to be bumpy in the second half as the global recovery will probably remain tepid, affecting the commercial property sector accordingly.
RICS Senior Economist Andy Wu, said: "In Hong Kong, rents in the central business district continued to struggle to show any significant growth in the second quarter, given a lacklustre employment market in the financial services sector and rising levels of available rental stock in the decentralised business districts. Our survey results also indicate that investors are still somewhat hesitant towards making a commitment in the commercial property and we expect the trend to continue for the time being."
RICS Senior Economist Andy Wu, said: "In Hong Kong, rents in the central business district continued to struggle to show any significant growth in the second quarter, given a lacklustre employment market in the financial services sector and rising levels of available rental stock in the decentralised business districts. Our survey results also indicate that investors are still somewhat hesitant towards making a commitment in the commercial property and we expect the trend to continue for the time being."
Recent data indicates the short-term economic outlook for Singapore continues to to be relatively sluggish as well. Although the OSI remains in positive territory, it declined in Q2. Similarly, the ISI edged down over the quarter.
Wu observed that there are signs that economic uncertainty is starting to affect the commercial property sector in Singapore. "We believe in the short term real estate activity will remain relatively depressed due to ongoing economic challenges. That said, the fundamentals of the city state's real estate market still look positive for the medium to long term as Singapore could continue to emerge stronger through a high level of transparency and a business-friendly set of policies."
China is not looking favourable either, with the OSI and ISI falling into negative territory for the first time since 2009. "The biggest threat to China, other than headwinds from a recurrence of tighter credit conditions, is the apparent oversupply of offices and retail space which will strain current rental values and prices during a period of fading interest from businesses and investors," said Wu.
"We believe investment levels and transaction volumes will likely continue to be depressed through the reminder of the year. Nevertheless, acceleration of government reforms and measures aimed at stimulating the economy should offset some of the adverse market forces."
In contrast, Malaysia's OSI increased notably since Q1, climbing firmly into positive territory. In addition, the ISI has also turned positive for the first time since mid-2013, partly driven by domestic demand and growth in export.
The OSI and ISI in Japan also continued upward, with both indicators posting another strong reading and remaining positive for the 12th consecutive quarter. Buoyant OSI and ISI figures indicative of high confidence levels were also seen for New Zealand.
"Interestingly economic optimism, thought gently fading, has continued to trigger strong demand for property space in Japan. It's clear both foreign and domestic investors still see the value of Japanese commercial real estate and remain particularly enamored with the office, retail and industrial sectors. We believe this upward trend will unlikely reverse itself anytime soon and investment numbers will continue to uptick for some time to come," noted Wu.
The RICS Global Commercial Property Survey is a quarterly guide to developing trends in the commercial property investment and occupier market. Find out more about the survey here.
"Interestingly economic optimism, thought gently fading, has continued to trigger strong demand for property space in Japan. It's clear both foreign and domestic investors still see the value of Japanese commercial real estate and remain particularly enamored with the office, retail and industrial sectors. We believe this upward trend will unlikely reverse itself anytime soon and investment numbers will continue to uptick for some time to come," noted Wu.
The RICS Global Commercial Property Survey is a quarterly guide to developing trends in the commercial property investment and occupier market. Find out more about the survey here.
*About the RICS Occupier Sentiment Index (OSI) and the RICS Investment Sentiment Index (ISI)
The 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.
The 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 are calculated by subtracting the numbers of respondents reporting 'down' from the number who reported 'up'.
The 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 are calculated by subtracting the numbers of respondents reporting 'down' from the number who reported 'up'.
