Why work-from-home setups won’t significantly impact Hong Kong’s office markets 

Savills says Hong Kong’s “notoriously cramped housing” counts against the WFH model. 

With the end of the fourth wave of COVID-19 infections in Hong Kong, Savills notes a steady improvement in the investment outlook of the property market has been evident, especially in the industrial market, proven to be resilient over the past year owing to its popularity among investors. 

One of the largest deals was the sale of Kai Bo Group Centre in March for HK$1.4 billion to Angelo Gordon, an American alternative investment manager, with a sale-and-leaseback arrangement at a 4% yield. A 1.7% increase QoQ in the price of flatted factories in Q2/2021 was also recorded, the first quarter of increase after seven consecutive quarters of decline. 

Here’s more from Savills:

Various lucky draw programmes offered by different businesses and organizations, most notably Sino Group and Chinese Estate Holdings, have helped to boost the vaccination rate, which is of critical importance for the relaxation of quarantine restrictions to and from Mainland China and with other destinations in the latter half of 2021. 

While retailers and hoteliers are anxious for a return of mainland and international visitors, the consumption voucher scheme will create some short-term support to local consumption demand. The government scheme offers all permanent residents HK$5,000 to spend locally. The cash injection will also favour the hospitality sector, in combination with the “Staycation Delights” scheme launched by the Tourism Board in April. 

Grade A office rents recorded a drop of 2.6% and 2.8% QoQ in Q2/2021 for overall and Central respectively. Although this represents an eighth consecutive quarter of falls, the ongoing deceleration in the rate of decline can be viewed as an improvement in market sentiment. While vacancy rates increased slightly from 8.9% in Q1/2021 to 9.3% in Q2/2021, some office buildings continue to achieve high levels of occupancy and enjoy the ability to be selective regarding tenants. 

We expect that the impact of working from home on the office market will be limited given the fact that the traditional office model still stands as a preference for most corporates. Hong Kong’s notoriously cramped housing also counts against the WFH model. 

The number of sales transactions in the retail market over the first five months recorded a 173% upsurge when compared with the same period in 2020. The passing of Tang Shing-bor, a property tycoon renowned as the “Shop King'', prompted the liquidation of his real estate portfolio, which helped fuel market sentiment in the second quarter. Nonetheless, retail prices in Q2/2021 fell by 3.0% QoQ. Leasing activity showed signs of revival, with F&B and daily necessities retailers attracting healthy demand in 1H/2021.