Hong Kong’s economy contracted in both 2Q and 3Q this year, leaving it 2.9% smaller YoY as of end September 2019. The US-China Tradewar tensions had been a headwind given it has a very open, globally-exposed, trade-driven economy, but the protest-related disruptions became an added challenge when some domestic activity shut down. Compared to its 25 year long term average GDP growth rate of 3.6%, the pace for the coming five years (averaging just 2.0%) is a notable slowdown (Oxford Economics). Historically, Hong Kong’s growth was highly volatile and also suffered from periods of both deflation and higher-than-desirable inflation. The Oxford Economics downside scenario we have adopted globally sees a five year average annual growth rate of just 1.5% but if events locally continue to deteriorate, risks further to the downside must be anticipated.
Data points through end of November 2019. Change represents month-over-month change.
Hong Kong has long served as one of the world’s major logistics hubs and its world-class airport and seaport have been recently complemented with better land crossings including the 55 km bridge across the Pearl River Delta to Macau and Zhuhai. In the next four years, very few development projects will deliver thus the net logistics space added will be a fraction of the LTA. World-record-high logistics rents should edge higher and in our latest forecasts/houseview we expect prime rents may expand by an average 2.6% p.a. in the coming five years. This is a deceleration from historic rent growth (5.8% for the past ten years), but the sector should prove to be the most defensive of the main property types in Hong Kong.
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