Hong Kong, 12 Aug 2019 – Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services, today released a Radar report Specter of Long Trade War Looms over Property on the heels of the latest round of U.S.-China trade talks in Shanghai. The report examines the impacts of U.S.-China trade tensions on international property capital flows and confidence in Asian office leasing markets.
Andrew Haskins, Executive Director of Research, Asia, at Colliers commented: “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. In contrast, intra-Asian property capital flows still look firm.”
Sam Harvey-Jones, Managing Director of Occupier Services, Asia, commented: “In Asian leasing markets, we expect falling confidence among tech firms in South China, despite firm long-run prospects. 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.”
The US and Chinese economies are deeply intertwined. In 2018, according to the International Monetary Fund (IMF), China exported $481 billion to the U.S., while the U.S. exported $120 billion to China, for a total of $601 billion. A tariff of 25% currently applies to $250 billion of Chinese imports. Washington has broken the truce in the trade war agreed in Japan in June by announcing that the U.S. will apply a 10% tariff to all remaining Chinese imports (worth nearly $300 billion based on U.S. data) from 1 September. It is impossible to predict the outcome of trade wars once they start, and the impact of renewed tensions on the U.S. economy would be material, although the hit to Chinese GDP would be greater.
International property capital flows
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 property capital flows. After significant YOY declines in the first half of 2019, both headings of investment now look likely to be flat at best in 2019. In contrast, intra-Asian capital flows still appear firm.
Impacts on Asian occupier confidence
In Asian office leasing markets, while South China will initially feel a greater impact from trade tensions due to its focus on technology, confidence is also falling in Tier 1 cities elsewhere in China. In Shanghai and to an extent Beijing, uncertainty linked to trade tensions is delaying demand for office space and compounding the impact of sharply rising supply, pushing up vacancy. With 60% MNC occupancy of Grade A office space, Hong Kong is also vulnerable to lower demand for space, especially if a renewal of the trade war pushes down stock markets. It is reasonable for finance, professional services and technology groups to consider expansion in Singapore to mitigate risk, while we expect trading or manufacturing occupiers to consider India or Southeast Asia.
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Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning approximately 40% of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management.