London v Hong Kong Office Rents

Knight Frank is the real estate watcher who reports this week from both Hong Kong and London.  David Stockman reviews the London real estate scene, and how it is signaling market crash ahead:

Instead, he goes straight to an apparent anomaly: While property prices are soaring, rents are falling. During the past year, for example, property prices in Mayfair are up 5%, but rents are down 8%. Likewise, in the area north of Hyde Park, prices have risen 10%, while rents have fallen by 8%. Overall, rents peaked in 2011 in Prime Central London, and have been slowly falling ever since.

Stockman's post is particularly interesting as to the source of this great wealth, and that is over-assessed valuations of resources that cannot be sustained, or nominal wealth.  The title to London real estate is legal, but the valuation is whimsical.  In a false economy, even assets are falsely assessed.  when this comes down, people will have claims at $10 million, but only say $1 million in assets to support it.   $9 million in "value" wiped out.  Maybe $9 million in valuation, but not in value.

Mish looks at junk bond valuations historically....

In 2009, Time Warner decided to spin off AOL as its own company again, ending their ill-fated relationship. But, as The Times noted, “the merger between AOL and Time Warner will likely remain a prominent part of both companies’ legacies, rather than becoming a historical footnote. After all, more than $100 billion in shareholder value was wiped out.” 

No, not $100 billion in value, 100 billion in valuation...  yes, plenty o' pensions have yet to recover from that nominal loss, but the $100 billion put in was pretend assets pretended to be assigned to real people's pensions.  When you thought you were working for $50 an hour with $10 an hour tucked away for old age, your assets were being trifled with by people closely watched by the SEC.  Now they are gone.   What is coming next is the rest will go too.

But the Empire State Building valued at one billion and the Empire State Building valued at 100 million is still the Empire State Building.  The asset has not changed.  Overvalued, the Empire State Building owners have overvalued economic leverage over the rest of us.  Properly valued, the economic power is properly balanced.

Next let's compare observations on London with a consulting firm's review of Hong Kong:

With Central rentals running at US$234.30 per square foot per annum, it remains the only market, other than London’s West End, where occupancy costs exceed US$200 per square foot.

and then this:

“We also believe other sub-districts, like Quarry Bay, will have an increasingly influential role as a core location, particularly with the development plans Swire Properties has there,” he said. Other up-and-coming sub-districts include Admiralty and Sheung Wan, near Central, Wan Chai/Causeway Bay, Tsim Sha Tsui, and the Kwun Tong/Kowloon Bay area of Kowloon East.
While core Central rents “grab headlines” for their high prices, Mr Dickinson noted that “there are Grade-A offices available in every sub-district at prices that would be considered fantastic value for money anywhere in the world.”

Hong Kong is more free market, so everything happens at once.  The danger of the economic crack-up coming is the occupy people will want more positive laws (down with corporate personhood!) to fight the positive laws that got u in this mess to begin with.  How about deregulation?  All of this came about through regulation.  Yes, with no regulation some crazy stuff will go on, but it gets wiped out quick, since it is not government-protected activity.  And while crazy stuff is going on, same people can find right rents.

This is better.

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