26 January 2018

The property market started the new year with a strong sentiment, which continued from Q4 2017. I have never felt so busy in January before, and the market has no sign of slowing down despite the festive season. The announcement of the sale of 18 King Wah Road to Tai Ping Trust at HK$9.95 Billion has once again underpinned the strong demand for Grade-A office stock. The stock market continues its strength and while the Hang Seng index continues to surge, the Dow Jones has hit a record high every day. Which will definitely boost the investment sentiment.

I am very optimistic about the office market this year, especially when I see the vacancy rates in Kowloon East drop after a few large leasing deals have been completed. The demand for en-bloc office will continue to grow, which is attributable to the Chinese corporates looking for headquarters, and the private or institutional investors looking for rental income or value-add investment opportunities. On the supply side, en-bloc offices are still hard to find since nobody is really selling, which has fuelled the growth of premium en-bloc offices. In terms of location, Wanchai is very promising although there aren’t many en-bloc opportunities there.

The strata-titled sector seems to offer some good prospects for the medium to long-term play. I do expect the demand for quality office space in Wanchai to continue to grow once the new MTR Shatin-Central Link is opened. The transformation of Wanchai is going to be an interesting one after more new hotels, restaurants, amenities, and the new extension of the Convention Centre on Gloucester Road are completed.

In terms of residential, the activities of acquiring residential sites have increased significantly. Medium to small-sized developers will not be able to compete with the large developers in bidding for government land tenders. Hence they have been pushed to acquire land in the private market. Such demand will also spur the collective sale activities, for which a few transactions have been concluded recently. Mainland developers will be more active, since the Hong Kong market now faces less governmental controls compared to China.

The industrial sector is very buoyant and the number of en-bloc transactions has increased substantially since the second half of 2017. Some investors are betting on the new re-vitalisation scheme 2.0 to be announced by the government later in the year. I expect re-zoning applications will increase due to a strong demand for office space in the city’s decentralised locations, already many developers or institutional investors are eying for the opportunities. Besides investment needs, the demands for data and logistics centres are on the rise; and Wong Chuk Hang will continue to be a focus for old industrial properties being re-vitalised into offices.
In the hospitality sector, there was a total of nine hotel sale transactions in 2017 – which is rare in Hong Kong. Investors have now restored their confidence in Hong Kong’s tourism sector, which has benefited from the recovery of the retail market and a growing number of visitors from the mainland. The opening of the high-speed rail in Kowloon West should increase the demand for hotels, particularly benefitting the Jordan and Tsim Sha Tsui areas. This may stimulate redevelopment of old buildings in the area into new hotels, resulting in investors shopping for value add opportunities in the hotel sector.

Hong Kong’s economy has experienced a strong GDP growth of 3.7% in 2017. I believe property prices will continue to grow even though the cost of capital is rising. Property developers are aggressive in their bids for residential sites, while real estate funds and private equities have been gearing up to do more transactions in Hong Kong. Personally, I do not believe there will be any events that deviate from what’s expected, but if they did, then it would be more likely to be caused by the stock market.