Hong Kong Residential and Investment Markets Scaled New Heights in 2021, With Pandemic Contained and Economy Recovering Property Market Set to Further Improve in 2022 with Border Reopening

HONG KONG SAR – Media OutReach – 14 December 2021 – Global real
estate services firm Cushman & Wakefield announced the Hong Kong and
Greater Bay Area (GBA) Property Market 2021 Review and 2022 Outlook
today.
With the pandemic being gradually contained and a steady economic recovery in
2021, Hong Kong’s property market shows signs of recovery:


The residential market has been active as the
number of sale and purchase agreements (S&P) reached a
peak since 2012. Private home prices show a significant rise with some housing estates
breaking record highs.


The number of major investment transactions increased
by more than double on the previous year, with industrial buildings and development
sites among the most active sectors.


The office leasing market has stabilized, with total
absorption in 2H21 standing at 513,000 sf NFA and rental declines slowing.


The retail leasing market has begun to pick up, as vacancy
in prime retail districts begins to drop and rents in some districts start to
rise.


In the GBA, Shenzhen and Guangzhou
continue to dominate major investment deals and residential transactions, with other
GBA cities catching up. Foreign investors’ presence has also grown, up to a 49%
share in 2021.

Data source:
Cushman & Wakefield Research

Chart 1: Number
of Residential Sale & Purchase Agreements

Chart 2: Major investment transaction volume by HK$ Bn (2012-2021)

Chart 3: Rental change in Grade A offices by district in Hong Kong

Chart 4: Retail rents in prime districts in Hong Kong

Chart 5:
Commercial property and investment deals in GBA

Hong Kong
residential market: total S&Ps in 2021 reached a 9-year peak;
overall home prices rose by 6.5%, with an increment of around 5-10% expected
for 2022

The residential
market was active in 2021, with more than 6,000 monthly S&Ps for six
consecutive months for the period from February to July, 2021. Despite a
decline in S&P cases since August 2021, the average number stood firmly at around
5,000 transactions a month. Total annual transactions are expected to reach
74,600 units, a new high since 2012. The secondary market has been particularly
active, with more than 57,000 transactions this year, another new high since
2012.

Prevailing low interest rates and strong demand from
end-users have gradually pushed overall home prices up since the beginning of
2021, peaking in August and September this year, after which prices fell slightly.
Overall home prices are estimated to rise by around 6.5% by the end of 2021.
Cushman & Wakefield’s home price tracker showed that prices at mass housing
estates, such as City One Shatin, surpassed the
prior peak of June 2019 in September this year, with a record high of HK$19,800
psf, and are now expected to slightly decline to HK$19,200 psf by the end of 2021.
Prices at mid-market housing estates, such as Taikoo Shing, and luxury homes,
such as Residence Bel-Air, are also approaching historical highs. Taikoo Shing
is within 9.3% of its prior peak of June 2019, while Residence Bel-Air is now
just 4.2% short of the 2019 peak.

 

Cushman &
Wakefield’s
Director and Head of Research, Hong Kong, Keith Chan, commented:
“The residential market has been active in 2021, with transaction volumes
reaching a 9-year high. As property prices have gradually approached their historical highs,
transaction and price growth slightly slowed in 2H21. We expect that the residential
market will continue to prosper in 2022. There will likely be around 18,500
private units available in the market, with no surprise in supply anticipated. The
high base number of 2021, combined with a shrinking stock of small-value units,
will likely diminish the 2022 transaction volume by around 10% y-o-y. However, an
improved economic environment will likely drive a further rise in home prices. We
anticipate home prices to climb by around 5% to 10% next year. Luxury homes in
urban areas will likely benefit more.”

Major
investment transactions: deal count and total transactions both reach new peaks
since 2019

Major investment transactions in 2021 (each with a
consideration of over HK$100 million) were mainly driven by local investors and
foreign funds. A total of 180 transactions were anticipated in 2021, more than
double that of last year. The total annual transaction volume for 2021 is now estimated
to reach HK$80 billion, a jump of 67% y-o-y. Industrial properties and development
sites were among the most well-sought after assets, each taking a share of approximately
30% of the total volume. The popularity of industrial properties amongst
institutional investors is due both to their relatively small consideration and
their flexibility to convert to alternative uses, such as self-storage facilities
or data centers. Due to the continued impact of social unrest and the COVID-19 pandemic in the past two years, demand for office and
retail space shrank, weakening investment demand. The office sector’s share of
total transactions dropped significantly to 15% in 2021, compared to 62% in 2020.

Cushman & Wakefield’s Executive
Director and Head of Capital Markets, Hong Kong, Tom Ko,
pointed
out: “We anticipate that the total major transaction volume in 2022 will surpass
2021, reaching a total of 200 deals and HK$100 billion. Demand for industrial
buildings in 2021 was at a historic high, and we expect this to continue in 2022.
Investors worldwide have recently been drawn to emerging multi-family conversions,
such as serviced apartments and hotel properties. The aforementioned asset
classes will likely benefit from the revival of tourism activities when the
border gradually reopens. The proposed
lowered threshold for compulsory sales will likely trigger more development
site transactions in 2022. To sum up, we expect industrial buildings,
residential development sites, and multi-family conversions to become the three
key pillars of the investment market in 2022.”

Grade A office market: positive absorption in
two consecutive quarters, rental decline softened

The performance of the Grade A office market has
recovered from its sluggish state in 1H21 for two consecutive quarters. Absorption
for 4Q21 stands at 185,500 sf NFA, despite a total net absorption of negative 578,700
sf NFA recorded in 2021. This is also a major improvement from the negative 2.3
million sf NFA recorded in 2020. The banking and finance sector, and insurance
industry, dominated new leasing transactions, with a total share of 42%. Overall
rents on average have fallen by 4.7% in 2021, at a much slower pace than the
negative 19.3% seen in last year. The improved economic environment and
positive absorption performance in 2H21 have brought availability down by 80 bps
to 13.6% in 4Q21, compared to 14.4% in 2Q21.

Surrender stock
has been slashed from the peak of 724,000 sf NFA in 1Q21 to 367,000 sf NFA in
4Q21, a reduction of 49.3% from its peak.

Cushman &
Wakefield’s
Executive
Director, Head of Office Services, Hong Kong, Keith Hemshall,
mentioned: “With the completion in
2022 of over 2 million sf of new grade A office space in Two Taikoo Place in
Hong Kong East, 98 How Ming Street in Kowloon East, and Airside atop Kai Tak
MTR Station, we expect overall availability to increase to 16% to 17% by the
end of the year and accordingly, for average rents to drop by 1% to 3%. That
said, we expect that anticipated border re-opening will drive an improvement in
the economy and the demand for office space will increase with an estimated net
take up of 300,000 – 500,000 NFA for 2022. We expect Banking & Finance,
Insurance and Business Centre / Co-working to continue to be active.”

Retail market: vacancy
dropped across the board; rental levels have bottomed out

Retail sales growth
in the jewellery & watches and fashion & accessories sectors (Jan-Oct
2021) has remained the strongest in 2021, with a y-o-y increment of 29.2% and
22.9%, respectively. Total sales in the retail industry in 2021 rose to HK$288.9
billion, a y-o-y increase of 8.5%. Retail rents in core districts have bottomed
out beginning from 2H21. Increased local consumption has driven recovery of
F&B rents in the range of 2.2% to 2.8% y-o-y from their bottom. The y-o-y vacancy
rates in prime districts have fallen, especially in Causeway Bay and Tsimshatsui,
to 7.9% (negative 520 basis points) and 13.1% (negative 480 basis points) respectively,
with many new short-term leases evident.

Cushman &
Wakefield’s Executive Director, Head of Retail Services, Hong Kong, Kevin Lam,
mentioned: “With
Hong Kong bringing the pandemic under control, the domestic economy gradually
recovering, and the employment rate picking up, we anticipate an improvement in
the consumer market in 2022. We believe retail rents have bottomed out and
vacancy will decline further. Overall high-street rents will likely recover
further in 1H22 at a range of between 2% and 5%, with Central district expecting
to reach to as much as 5% to 8%. The reopening of the border will help bring
tourists back, boosting major brands for their expansion plans next year.
Central is expected to lead the recovery, followed by Tsimshatsui and Causeway
Bay. However, a net population outflow is expected at the initial stage of the border
reopening, bringing short-term pressure on retail sales, and particularly
impacting F&B businesses during weekends. Accordingly, the return of
tourists and their related consumption activities will drive recovery in the
longer-term. The wellness and athleisure trends we saw driven by the pandemic are
expected to continue in 2022.”

GBA: Shenzhen and
Guangzhou still dominate, but other GBA cities will catch up in 2022

Most of the commercial
property investment deals realised in the GBA in 2021 were still centred on Shenzhen
and Guangzhou, together taking 98% of total transactions. The annual
transaction volume is expected to reach RMB60 billion, a rise of 9% y-o-y, and also
the second highest by total volume in the last five years (2017–2021). This demonstrates
a highly active market, despite a smaller average deal size than before. Most
transactions were low in value.

In terms of
property types, non-traditional asset classes such as industrial / logistics
and data centers continue to remain attractive. However, data center assets are
limited by the available supply, and accounted for about 1% of total
transactions. Meanwhile, neighbourhood malls are expected to be emerging investment
targets. These three areas are expected to become the mainstream investment classes
into the future.

Cushman &
Wakefield’s Executive Director, Capital Markets, Greater China, Queeny So,
commented: “We
expect the total GBA investment volume in 2022 will be about the same as 2021, with
its investment market continuing to mature. Investment opportunities are
gradually expanding to other cities beyond Shenzhen and Guangzhou, with further
investment activities expected. More foreign investors are now exploring investment
into the region, with 49% of the total investment volume in 2021 coming from foreign
capital, compared to 17% in 2020.”

In the GBA’s
residential sector, the total number of transacted units in the first 10 months
of 2021 fell by approximately 5.7% compared to 2020 on a like-for-like basis, with
Huizhou and Dongguan dropping the most, down 32.8% and 25.5%, respectively.

Cushman &
Wakefield’s
Vice
President, Greater China, Head of Consulting, Greater China, Alva To,
concluded: “Homes in Shenzhen and
Guangzhou remain the most expensive amongst the mainland GBA cities, although
Foshan, Dongguan and Zhongshan are catching up with double-digit growth
increases. Meanwhile, the residential market is likely
to remain stable, although concerns over future government policies remain.”

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Photo 1

Photo 1
Caption:Spokespersons of Cushman & Wakefield announced the Hong Kong and
Greater Bay Area (GBA) property market 2021 review and 2022 outlook today.

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