Hong Kong

Its occupancy rates in its Hong Kong and Singapore properties remained high due to steady demand.

More banks and corporates are cutting their real estate footprint.

New demand is likely to be tempered until China’s borders are fully reopened. Despite the overall property market being hampered by COVID-19 and Sino- US trade war, the performance of the industrial sector remained relatively resilient, with overall rents witnessing only modest declines. Colliers reveals that warehouses fell -5.6% YOY with factories falling -3.3% YOY in 2020. Tenants had a greater tendency to relocate for lower rents, while landlords were more flexible in offering incentives and longer rent-free periods to maintain occupancy. In 2021, Colliers expects to see the total export performance to recover from 2020’s low base, supported by the recovery of exports to China. In fact, total export growth returned in Q3 and Q4 2020, after experiencing six consecutive quarters of negative growth. Meanwhile, in December 2020 the Tuen Mun – Chap Lap Kok link opened, greatly enhancing logistics connectivity in the northwest New Territories. “We expect to see the Tuen Mun area capture new interests from both occupiers and investors. Overall, in 2021 we forecast warehouse rents to decline by 2.5% and prices by 3.0% YOY, as new demand may still be relatively limited until the border with China is fully reopened.”

High street retail rents declined by as much as 27.9% in 2020.

Annual net absorption was −1,769,900 sq feet in 2020.

Two Chinese Mainland financial companies leased an entire floor in Two IFC.

Transaction volume almost halved to USD 7.7b.

Analysts say cold storage investments are viable because of burgeoning demand underpinned by the pandemic.

Luxury volumes have been volatile recently with July’s buoyant mood quickly dissipating due to a third virus wave. Luxury volumes have been volatile over the past few months with the buoyant mood in July quickly dissipating due to a third wave of virus infections and heightened social tensions. According to Savills, total luxury volume (HK$20 million +) surged to 282 in July, the highest in 2020, before falling back to 153 in August. The combined number of transactions for the two months (435) was still slightly ahead of the 419 transactions completed in April and May, though. The sale of 37 Shouson Hill Road in Southside for HK$2.5 billion to Hang Lung Properties was the most significant deal of the quarter, with the developer planning to redevelop the former US consular staff quarters into super luxury detached houses, targeting completion in 2024. Elsewhere two other house sites were sold to investors / individuals eyeing redevelopment, reflecting a firm appetite for developable sites at the top end of the market. Though market sentiment was mixed at best, luxury prices on Hong Kong Island and in Kowloon declined marginally by 0.1% and 0.5% respectively in Q3, as only a handful of distressed assets changed hands. Here’s more from Savills: The New Territories market, in particular houses, continued to attract buyers, given the appeal of low density living, ample outdoor space and the availability of parking, and luxury prices rebounded for a second consecutive quarter by 2.6% as a result. A quick comparison of average house prices by district reveals the substantial price differential between the Peak (with an indicative price range of HK$55,000 to HK$105,000 per sq ft) compared with Sai Kung (where typical average prices range from HK$11,800 to HK$17,500 per sq ft), the latter almost one-fi fth of the former. This phenomenon adds to the appeal of New Territories houses to potential buyers, especially for those who did not need to commute to the CBD frequently. Mass market supported by secondary market revival The mass market was in a buoyant mood with reviving interest in the secondary market due partly to lower down payment requirements from Mortgage Insurance Programme. The secondary transaction volume totalled 25,327 over the first seven months in 2020, a 1.4% rebound from the same period last year. The primary market saw fewer transactions as developers held back project launches due to the uncertain environment, while some were more focused on clearing backlog units with more aggressive incentives. From 2016 to 2018, developers were aggressive in primary launches with the number of primary unit launches (averaging around 20,000 per annum) consistently higher than the number of units being sold (averaging around 17,000 per annum). 2019 saw this trend reverse for the first time and this remained the case over the first eight months of 2020 with only 6,500 primary units launched but more than 9,000 primary units sold, representing a change in launch strategies by developers over the past 18 months when market sentiment has become more subdued. Outlook The potential reintroduction of the vacancy tax could see further changes to primary launch strategies in the near future. Assuming the proposed vacancy tax to be effective from 2021 onwards, as many as 8,600 completed but not yet sold units would be subject to the 5% levy on sales price on an annual basis, which would most likely prompt developers to speed up sales of such units. Adding another 54,000 units under construction (construction which began in 2019 or before) but not yet sold or launched, the primary launch pipeline in 2021 could be substantial, in particular given the cautious launch programmes witnessed this year. Looking ahead, the full impact of COVID-19 may be felt towards the end of the year if the government tapers subsidies and we see more corporate layoffs pushing unemployment rates to new highs. The unemployment rate currently stands at 6.1%. With uncertain economic prospects and a volatile stock market, residential volumes and prices may have to endure a bumpy ride to the end of this year. Luxury apartment prices on Hong Kong Island have fallen by 8.6% from their previous peak in Q2/2019 and are expected to slip by a further 3% to 5% towards the end of this year given the uncertain environment. Looking into 2021, with economic growth expected to remain weak, unemployment expected to hit new highs and developers likely to accelerate launches, luxury prices may come under further pressure, possibly declining by another 5% to 10%. Low interest rates and ample liquidity will provide some market support, however. Difficult variables to predict include the containment of COVID-19, future US-China relations, and the possibility of resurgent social tensions.  

This is after rents have fallen by 11.9% over the first three quarters of 2020. The city’s Grade A office vacancy rate rose to 6.8% at the end of September 2020, from 4.7% at the end of 2019. According to Savills, the surging vacancy rate during the period was attributed mainly to worldwide economic recession, which has inevitably resulted in corporate downsizing and the surrender of office space. Decentralisation continues to prevail with more Central-based financial and business services firms moving to other districts (e.g. Wan Chai/Causeway and One Island East). Most businesses have resumed normal working patterns but some multinationals are still allowing staff to work from home. Here’s more from Savills: Retail and hospitality have been greatly impacted by the pandemic, together with finance and business services. This is reflected in the rising vacancy rate in the CBD. Medical and online businesses are examples of sectors that have been relatively less affected. In order to attract tenants, landlords are currently offering longer rent-free periods as an incentive, rather than shortening the lease term to less than the typical term of three years. Developers and investors are more cautious when considering land acquisitions, and the Development Bureau recently delayed the tender of New Central Harbourfront Commercial Site 3. We expect rents to fall by a further 7.5-10% in a year’s time, after rents have fallen by 11.9% over the first three quarters of 2020. The vacancy rate is expected to continue rising given sluggish leasing activity and 1.4 million sq ft of new supply due to complete in 2021. What advice would Savills give a 30,000 sq ft CBD occupier with a lease event in 12 months’ time? The occupier should start the planning process (e.g. solicit and consider options) now since many 30,000 sq ft CBD occupiers start their search for available options one year before expiry. Typically, it requires six to nine months for the entire renewal/relocation decision.  

But the economic recession and mounting market uncertainty continued to weigh on housing prices. With the COVID-19 outbreak easing and some of the social-distancing restrictions lifted, purchase sentiment in the residential market improved. Knight Frank reveals the sales market became more active in September, with transaction volume increasing by 15% MoM to 5,024 units. The primary market, in particular, was under the spotlight, given a number of new project launches, including CK Asset’s Sea to Sky in Lohas Park, Sun Hung Kai Properties’ Wetland Seasons Park in Tin Shui Wai, and ITC Properties and URA’s Hyde Park in Cheung Sha Wan. Here’s more from Knight Frank: Most recently, the first two batches of flats at New World Development and MTR’s The Pavilia Farm in Tai Wai was heavily oversubscribed by 57 times, the highest subscription rate since 1997. However, the economic recession and mounting market uncertainty continued to weigh on housing prices. According to the latest official statistics, overall residential prices dropped by 1.1% MoM in August. This was the largest decline since February, resulting in a price gain of only 0.4% so far this year. In the luxury market, some homebuyers successfully leveraged the price correction amid a more volatile market to get on the property ladder, most targeting apartments priced at HK$20–30 million. The leasing market regained momentum during the month. Flats that were put on the market were leased out quickly since landlords were willing to negotiate. There were more enquiries from expatriates who plan to come to Hong Kong early next year. Serviced apartments offered deeper discounts, as they faced competition from hotels offering long-stay promotion packages and other attractive offers. Looking ahead, the primary sales market is expected to remain active with a few new projects scheduled for launch in the fourth quarter. Developers may provide more incentives and discounts to speed up sales before the year end. With more units available for sale and protracted negative market factors, we expect housing prices to drop by 3–5% in the rest of 2020.  

Rental decline slowed down compared to the first half of the year.

According to the Government's Land Sale Programme, the commercial plot New Central Harbourfront Site 3 will go to tender in the third quarter of this year. Instead of the usual highest bidder wins approach, the tender of this site will adopt a “two-envelope approach”. Developers will be required to submit separately a design proposal and a price proposal. The Development Bureau earlier further explained its scoring methodology to the Harbourfront Commission and the Land and Development Advisory Committee, in which the weightings for design and price will be 50-50. The tenderer with the highest combined score will be awarded the tender.

Investors expect to increase their exposure to logistics, living investment, and alternative asset classes.

Slowing activity comes despite unprecedented continued demand for investment class real estate.

Blame it on shrinking demand for prime warehouse space.