At a press conference held in Knight Frank Hong Kong office on 15 June 2022, Alnwick Chan, Managing Director, Professional Services, Antonio Wu, Head of Capital Markets, Greater China, Patrick Mak, Executive Director, Head of Kowloon Office Strategy & Solutions & Head of Tenant Representation, Greater China, Wendy Lau, Executive Director and Head of Hong Kong Office Strategy & Solutions, Martin Wong, Director and Head of Research & Consultancy, Greater China, and Helen Mak, Senior Director and Head of Retail Services, presented their forecasts for Hong Kong and Chinese mainland’s property markets for 2022.
Chinese Mainland Residential Market:
Martin Wong, Director and Head of Research & Consultancy, Greater China
The performance of the residential market in Chinese mainland in 2022 is mainly affected by four factors – the outbreak of COVID-19 pandemic, economic downside risks, debt problems and the Central government’s regulation of the real estate sector. In the face of slowing economic growth, we expect the Central government to gradually relax the curbs on the property sector and stabilise the housing market to stimulate the economy. The real GDP growth rate in Chinese mainland is forecasted to slow down to 3.5-4% in 2022. Affected by the debt crisis, we expect overall residential prices to only have a limited growth in the short term. Among which, property prices in Tier-1 cities will outperform other cities with a moderate growth of 2-3%, while prices in Tier-2 and Tier-3 cities will record a slight decline of 0-2% Y-O-Y in 2022.
Hong Kong Residential Market:
Martin Wong, Director and Head of Research & Consultancy, Greater China
Impacted by the fifth wave of the pandemic, overall residential prices in Hong Kong recorded a slight decline in 1H 2022, but still stood at the historical high. With the pandemic situation under control and the leadership of the new government, the sentiment in property market is expected to reverse in 2H, with mass residential prices rising by 3-5% throughout the year, and a chance to reach a new record high. Although the investment sentiment in Hong Kong is improving, given that overseas and Chinese mainland buyers are the major purchasing power to support the luxury segment, luxury residential price growth will slow down to 0-3% Y-O-Y due to border restrictions and quarantine requirements.
Hong Kong may follow the US to raise interest rates in 2H 2022, but the actual interest rate will remain below 2%, which will have little impact on the overall purchasing power of the market and will only affect a small number of first-home buyers.
We expect the total transaction volume to adjust to 55,000-58,000 units in 2022, with primary transactions accounting for 25% of the total. Due to the slow progress of the government land sale in 1H 2022, the annual land sales revenue is expected to fall back to HK$50-70 billion, while land premiums are expected to reach HK$40-50 billion for the year.
Hong Kong Land Supply:
Alnwick Chan, Managing Director, Professional Services
Although the HKSAR government has various medium and long-term measures to increase land supply, there are insufficient options to increase short-term land supply, especially in urban areas. We advocate that the government should facilitate modification of land leases in urban areas. Possible ways include modifying the leases of "One House", site coverage relaxation, optimising the Standard Rates for industrial revitalisation, and launching more large-scale urban renewal projects through the Urban Renewal Authority.
Hong Kong Office Market:
Wendy Lau, Executive Director and Head of Hong Kong Office Strategy & Solutions
Some multinational corporations (MNCs), especially those in the financial industry, have been actively seeking space in sought-after Grade A buildings in Central for upgrade and expansion amid stabilised rents in Central Grade A buildings. Strong leasing demand supports further rental growth. In contrast, rents in North Point and Wong Chuk Hang are under pressure due to high vacancy rate. By 2025, approximately 3.5 million square feet of new office supply will be available in Hong Kong Island, mainly in Central and Quarry Bay.
As Hong Kong’s pandemic situation stabilises, the economic sentiment is recovering, and leasing activity has regained momentum. Apart from North Point and Wong Chuk Hang, the overall Hong Kong Island market saw signs of bottoming-out. We expect office rents will rebound in 2H, with Grade A office rents to grow by 5-10% in 2022.
Kowloon Office Market:
Patrick Mak, Executive Director, Head of Kowloon Office Strategy & Solutions & Head of Tenant Representation, Greater China
The Kowloon Grade A office market demonstrated much stronger momentum since the easing of the fifth wave of the epidemic. New setups of Chinese mainland enterprises, relocations from Hong Kong Island and office upgrades are the major sources of new demand in Kowloon that fuelled the momentum.
Some multinational corporations (MNCs) have been actively seeking space for upgrades in premium buildings in emerging office hubs in Kowloon, in which 70% of them decided to adopt an agile working model as it can reduce office operating costs by up to 25%. This explains why demand focuses on large and sizeable Grade A offices such as the NCB Innovation Centre (previously known as 888 Lai Chi Kok Road) boasting high ceilings, wide interior span and an almost column-free layout, which all facilitate a better configuration of an agile workplace.
The small rental gap between the leading GBA cities and Kowloon is a pull factor to attract new setup companies from the GBA to choose Kowloon when they expand their footprints to Hong Kong market, or via Hong Kong to the international markets. We foresee more office leasing demands in Kowloon will be generated when the borders reopen.
With the fifth wave of COVID-19 pandemic under control, we expect rents to remain stable in the coming three to six months, and the overall Kowloon office rents to slightly increase by 0-1% this year.
Capital Markets:
Antonio Wu, Head of Capital Markets, Greater China
The overall investment climate has picked up this year. From January to May 2022, a total number of 61 deals have been made, equivalent to around HK$28.96 billion, with industrial and hotel assets making up 70% of the market transactions. Funds, private equity firms and institutions have been the major buyers of hotel and industrial assets in 2022. There is a growing interest from investors in converting hotels into co-living spaces or student accommodation. Over the past 18 months, six out of eight hotels transacted were sold to foreign funds, and all of them were converted into co-living spaces or student accommodation.
Chinese mainland’s strict COVID-19 restrictions draw funds’ demand towards Hong Kong property assets. Moving forward to H2 2022, we believe buyers will continue to acquire hotels and en-bloc industrial buildings as they provide stable rental income.
Hong Kong Retail Market:
Helen Mak, Senior Director, Head of Retail Services
Hong Kong retail market is under enormous pressure during the fifth wave of the pandemic. Total retail sales value in the first four months of 2022 slightly dropped by 3.1% Y-O-Y to HK$113.06 billion. Affected by strict anti-epidemic measures, the total revenue of F&B sector in the first quarter fell sharply by 23.1% Y-O-Y. As local social distancing restrictions have eased further, we expect that consumer confidence will gradually restore and stimulate the retail market again.
Strict travel curbs in Hong Kong are keeping tourists away. While online retail has experienced rapid growth since the outbreak of the pandemic, retail brands are not actively increasing the number of physical stores for the time being. Given that F&B is a necessity, adjusted retail rental levels continue to attract F&B tenants for expansion, such as the world’s first Transformers-themed restaurant on Russell Street. Park Lane Shopper’s Boulevard on Nathan Road has submitted an application to turn the complex into an F&B destination. With the increase in consumers awareness of physical and mental health during the pandemic, we expect that sports-related, cultural arts and healthcare consumption will become a new retail trend in the post-COVID era.