A buoyant economy and robust retail sales driven by big-spending mainlanders created a booming commercial property market last year - shattering records in both rents and transaction prices.But individual investors have shied away since the latter half of 2011, as the European debt crisis bit hard, and banks tightened credit.
Analysts expect transactions to continue cooling this year, with rent hikes also abating.
In January last year, Emperor Holdings splashed out HK$380 million to acquire a 600-square-foot store at 76 Percival Street, where Percival intersects with Russell Street - the world's second most expensive street after New York's Fifth Avenue.
That transaction worked out at a whopping HK$633,333 per square foot, and was the highest unit price paid for a retail property in the SAR.
In November, a 14,590-sq-ft property at 36-42 Soy Street, Mong Kok, fetched HK$465 million, or HK$31,871 psf, the largest street shop transaction of 2011.
Analysts said another reason why rents jumped significantly last year was because many leases that came up for renewal were signed during the economic trough of 2008.
Meanwhile, international brands continue rushing to gain a foothold in Hong Kong's prime areas as they see resilience in China.
"Many brand names see Hong Kong as an important showcase in their efforts to sell their name to mainlanders," said Wharf Holdings (0004) chairman Peter Woo Kwong-ching.
Wharf owns Harbour City in Tsim Sha Tsui, and Times Squa
re in Causeway Bay - two of the most popular malls for well-heeled mainlanders looking for big- ticket items.In mid-2011, Apple Inc agreed to shell out HK$10 million a month to rent three floors on Canton Road in Tsim Sha Tsui, while Longchamp will be taking two floors at Silvercord on the same road, where the French fashion brand will pay HK$7.5 million a month.
Despite fears of a hard landing for China's economy, the flood of mainland tourists never slowed. In fact mainland tourist visits rose 24 percent to 23 million in the first 10 months, year-on- year. Coincidentally, local retail sales climbed 24 percent in November, compared with a year earlier.
"Prices rose even higher in noncore areas, with rental yield [annual rent as a percentage of price] dropping down to 2 percent in areas like Sham Shui Po," said Percy Or Wai-leung, a shop director at Ricacorp (CIR) Properties.
But toward the latter part of 2011, commercial property sales fell considerably. Over the year, there were 4,857 street shop deals registered, through December 22, totaling HK$53 billion in value, according to Centaline Commercial data. Both figures were lower than the previous year.
Confirmor resales, another gauge of market activity, also declined sharply in the second half to 122 deals - down 37 percent from the first half.
Agents blamed the downtrend on the extreme uncertainty brought about by the bleak world economic outlook, along with the historic downgrading of the US sovereign credit rating by Standard & Poor's, and the euro crisis.
As well, banks have tightened credit, while the Hong Kong Monetary Authority raised the down-payment ratio for commercial property.
"When buyers do not rush into the market because borrowing costs are high, owners remain financially strong so that they do not seek to fire-sell their properties," said Raiky Wong Wai-kei, a sales director in Centaline's retail properties department. "That results in a stalemate."
However, while individual investors take to the sidelines, big enterprises are still able to grab deals in shopping malls.
In August, blue chip Swire Pacific (0019) sold its Festival Walk shopping mall in Kowloon Tong to Singapore's Mapletree Investments for HK$18.8 billion - the largest lump sum ever paid for any property in Hong Kong.
The Link REIT (0823), Asia's biggest public property trust, made its first acquisitions since its listing in 2005 by snapping up two malls around Hang Hau MTR Station for HK$1.76 billion.
While property agents agree that shop transactions are set to slow this year because of the cautious stance of banks, they remain split on the rent outlook.
Or said the spending power of mainlanders will be eroded if Beijing does not loosen its policies enough. "If factories and enterprises continue to be short of money, how can their owners spend a fortune on luxury items in Hong Kong?"
He forecasts only modest growth in rents on prime streets, and no growth in local areas.
But Centaline's Wong is more optimistic, saying the government's HK$6,000 giveaway has boosted consumer spending, and rents are still on the uptick.
He predicts prime rents to rise 20 to 30 percent in the next 12 months.
