This month we focus on Hong Kong, which exhibits several divergent trends and where the currency peg between the HKD and USD is currently creating some economic challenges. With the ongoing U.S. recovery, the USD is up more than 20% against a basket of key currencies in the past 12 months alone, weakening Hong Kong’s external trade competitiveness. China’s economic growth deceleration, and particularly its crackdown on corruption affecting luxury retail sales both at home and in Hong Kong, is also placing downward pressure on elements of Hong Kong’s economy and space markets.
Consensus Economics (November 2015 survey) expects Hong Kong’s GDP to grow by just 2.2% in 2015 and by the same rate again in 2016, down from the 2.5% recorded in 2014. The labour market is expected to be broadly stable, with the unemployment rate projected to remain at 3.3% in 4Q15, but with potential to drift a little higher next year.
The long term, structural rationales for investment in the real estate markets of Hong Kong are compelling. But in the short term, we see a number of risks, mainly due to global capital market variables. While we anticipate good income growth in Hong Kong office properties, we also see heightened potential for corrections in capital values in the short run. High street retail rents, however, are falling rapidly.
Source : CBRE Global Investors