US-China trade war weighs on Asian property investment, leasing

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The US-China trade war is weighing on property capital flows into and out of Asia and weakening confidence across office leasing markets in Hong Kong and China, says Colliers.

The firm expects Asia-to-global and global-to-Asia investment to be flat at best in 2019 after significant year on yera declines in the first half of this year.

The impact of the trade war will be material to the US economy, having exported $120bn to China last year, however it will hit the Chinese economy even harder, as it exported $481bn to the US last year.

A 25% tariff currently applies to US$250bn of Chinese imports, with the US implementing a further 10% tariff on all remaining Chinese imports — worth nearly $300bn — from September this year.

“Despite active recent interest from Singapore and South Korean capital in global property markets, trade tensions appear to be weighing on both Asia-to-global and global-to-Asia capital flows,” said Andrew Haskins, executive director of research, Asia, at Colliers.

“In contrast, intra-Asian property capital flows still look firm.”

Additionally, the trade war is denting confidence in office leasing markets across South China due to the region’s focus on technology, as well as tier 1 cities elsewhere in China.

In Shanghai and to an extent Beijing, Colliers found that the uncertainty linked to trade tensions has delayed demand for office space, compounding the impact of sharply rising supply and pushing up vacancy.

Hong Kong is also vulnerable to lower demand for space, with 60% of its grade A office space occupied by multinational corporations.

“In Asian leasing markets, we expect falling confidence among tech firms in South China, despite firm long-run prospects,” said Sam Harvey-Jones, managing director of occupier services, Asia, at Colliers.

“The Shanghai and Beijing office markets have been affected by both delayed demand due to the trade war and heavy new supply. If trade war resumes, Hong Kong may have more to lose than mainland Chinese cities, given the high MNC occupancy and reliance on the finance sector.”

“It is reasonable for large occupiers to consider expansion in other markets to mitigate risk.”

Colliers expects finance, professional services and technology groups will consider expanding to Singapore to mitigate risk, while trading and manufacturing occupiers could expand to India or Southeast Asia.