Hong Kong, 21 November 2017 – At today’s year-end press conference, Colliers reveals Hong Kong’s property market continues to rise on the basis of a healthy economy. Hong Kong’s real GDP is likely to grow at 3.7% in 2017, the highest since 2011 and exports recorded growth of 5.5% YOY from January to September 2017. Driven by strong investment appetite, lower interest rate, and abundant liquidity, property prices continue to beat market expectations. Looking forward, property price should face some pressure from rising borrowing costs and the shrinking of balance sheet by major Central Banks.
The following highlights the findings and projections for different property sectors in Hong Kong:
Investment Market: Hong Kong is the Focus of the World
Hong Kong has been the top two investment market in the world with a total of USD 45.9 billion YTD. The city received the highest Chinese outbound investment (24%) and their investment focus has shifted from income generating properties to development sites. With the total investment growth at 70% YOY, investment market sentiments remain very strong. “Most transactions have been done by domestic investors but PRC interest has re-emerged lately despite capital outflow restrictions by Chinese authority and we expect this trend to continue in 2018.” Antonio Wu, Deputy Managing Director of Capital Markets and Investment Services forecasted.
Office Market: Positive Outlook with More Choices on the way
Office market will continue to benefit from a strong GDP growth and optimistic business outlook by major industries. While FIRE and professional services sectors will continue to increase their headcounts, the new economy sectors, i.e. ICT, Technology, Media and Entertainment will expand the fastest. However, high rental cost has made companies to look for alternative solutions to meet their real estate demand. Looking forward, companies will have a wider choice with new supply in emerging business districts. “Kowloon East will have a new supply of 1.8 million sq ft in 2018 and it is on its way to becoming the largest office district by 2020. On the other hand, Quarry Bay can take advantage of the Wanchai-Central Bypass to become the preferred destination for decentralisation by existing occupiers in core-CBD.” Fiona Ngan, General Manager and Head of Office Services commented.
Retail Market: Rebound in Tourists Arrival Supports Retail Sales
A pick-up in the number of mainland visitors triggers Hong Kong retail sales to grow at a faster pace. Figures have shown that retail sales in Hong Kong surged 5.5% YOY in September 2017 compared to a 3.2% rise in the previous month. “A selected retail sub-sectors, such as premium watches & accessories, sports & lifestyle apparel, F&B and desserts will continue to expand while the general market will see a moderate recovery” Cynthia Ng, Director of Retail Services claimed.
Residential Market: Closing Price Gap between Urban and Rural Areas due to Improving Infrastructure
In 2017, non-local developers have taken up 96% of total residential site transactions in terms of land value. These sites were sold at higher prices than the market had expected. As a result, Hong Kong developers have been active in converting farmland for residential development. “Land premium of farmland conversions, a 24-26% discount to the latest market accommodation value in the same district, has become a more attractive alternative to competitive bidding,” Vincent Cheung, Deputy Managing Director of Valuation and Advisory Services commented.
On the residential leasing market, the general demand for luxury residential units has been soaring towards the end of 2017 and only little vacancy is offered. “Many MNCs have started to shift to hire more Asian expats and the number of PRC staff is also on the rise. Given Asian’s emphasis on education, we expect properties within catchment area of new international schools in decentralised districts will become more popular,” Letizia G. Casalino, Senior Director of Residential Services said.
Industrial Market: New Revitalisation Policy Boosts Investment Activities
The industrial sales market is on an upward trend in 2017 with the increase in both the number of transactions and the transaction amount. For leasing market, sizeable warehouse space is taken up immediately and the number of renewal cases increased with double-digit rental increment. Large end users have been entering the investment market to secure a permanent location for their operations. New warehouse gain popularity with low vacancy rate. “The new revitalisation policy will further enhance industrial property values which will attract new investments, especially if en-bloc industrial building could be converted into transitional housing under the new scheme. Self-storage space and subdivision units will continue to increase.” Bill Chan, Director of Industrial Services said. Colliers expects the number of transactions and total investment amount continues to increase and to reach a new record high in 2018.
Looking forward to 2018, Colliers expects property price to move up moderately in 2018 as the interest rate would only increase slowly and Hong Kong’s real interest rate would remain negative until 2019. Office will still be the most popular segment followed by development sites and industrial properties. A strong economy would also support the rent to climb further and the retail rent would experience a mild recovery with the rebound of retail sales and tourist arrivals.
In addition, the growing roles of technology such as artificial intelligence (AI), phygital O2O concepts, IoT, automation, big data and the shared economy model, has started to penetrate the real estate market. “Technology disruptions to the real estate industry as we know it has become imminent. Investors, landlords, occupiers should be mindful of both opportunities and threats to their existing business models Emerging technology will also have a long-lasting impact on the supply, demand and utilisation of real estate spaces across different sectors.” Daniel Shih, Director of Research said.