Hong Kong, 15 August 2017
- Colliers International (NASDAQ and TSX: CIGI) releases today its Greater Bay Area research report
, reveals that the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) development will be a key component of China’s global expansion plan. Not only GBA development will bring a stronger economic growth to the region and make Hong Kong a truly global city, but it also create new property investment opportunities in different sectors and hotspots along new key infrastructures like express rail link and Hong Kong-Zhuhai-Macau Bridge.
The Greater Bay Area (GBA) comprises 11 cities which include Hong Kong, Macau and nine cities in Guangdong province adjacent to the Pearl River Delta. By itself, GBA is already an important economic region at a global scale: 5th largest economy in Asia, highest port throughput in the world, the most competitive cities in China and the home for 19 Fortune 500 companies. GBA’s GDP is comparable to other leading “bay areas” such as Tokyo, San Francisco, and New York, whereas the GBA’s GDP per capita still has plenty room to grow. With the leading four cities in GBA, it has become a polycentric region with huge growth potential. “Assuming GBA cities will catch up with their respective target cities’ GDP per capita in the future, the total GDP for GBA will increase from USD 1.3 trillion in 2015 to USD 3.6 trillion by 2030, representing an annual growth rate of 7.5%.” Daniel Shih, Director of Research said.
Fast economic growth and wealth creation will generate a lot of new demand for real estate market. With an increasing demand from finance, business services and IT industries, the need for office space will continue to rise quickly in GBA. Shenzhen will double its total stock by adding 5 million sq m new supply, pushing the vacancy rate higher in the short term. However, with new express rail link connections, rents in Futian District will catch up with Tsim Sha Tsui quickly as it will only take 15 minutes to travel between them. Futian District rents will rise 50% in the next five years.
Guangzhou’s rents will increase gradually with a more manageable supply pipeline and office rent at Pearl River New City will see 20% growth. For Hong Kong, rents in Island East will increase by 20% in the next five years due to continuous decentralisation from Central and the increasing supply of new office stock. From an investment perspective, investors will need to pay attention to the decreasing yield spread due to rising capital costs in China.
In the warehouse sector, Guangzhou’s supply of quality warehouse will increase substantially between 2017-2021, especially in Conghua, Zencheng and Huadu areas. Due to limited land supply in Shenzhen and Hong Kong, new warehouse facilities will spread into Dongguan and Huizhou.
In the retail sector, the growing disposable income and spreading of e-commerce have contributed to the changing retail landscape in GBA, more significantly in the leading cities. The e-commerce development index is much higher in Shenzhen and Guangzhou than other Tier 2 & 3 cities. Shopping malls in Shenzhen, Guangzhou and Hong Kong will have to reposition and optimise tenant mix or adopt phygital strategies in the face of challenges from e-retailing. Demand for additional retail space will be near new residential communities in Tier 2 cities due to population influx from Shenzhen and Guangzhou.
The residential market in Tier 2 cities will show the strongest growth. Zhuhai and Zhongshan will benefit from improving accessibility and Dongguang and Huizhou will attract new investments from Shenzhen. Guangzhou housing price will continue to rise steadily and Hong Kong will be more sensitive to continuous interest rate rising. Shenzhen, however, should experience a moderate downward adjustment following the home-price spike in recent years.
With the successful implementation of the Belt & Road Initiative and the further integration of GBA, Hong Kong has the potential to become a top global city on par with New York and London. In the long run, Hong Kong needs to plan for a new CBD3 to accommodate the increasing office demand. The existing container terminal site would be a better location for a new CBD than the East Lantau Metropolis as proposed by the Government. Not to mention the integration of GBA will further encourage cross-border e-commerce in Hong Kong and stimulate future demand for quality warehouse space.
Looking forward, the novel rich class in GBA would want to invest in Hong Kong’s property which will further stretch the local market. Unless Hong Kong can increase its housing supply pipeline quickly, property price will keep rising with additional interest from GBA residents.