HONG KONG, 16 April 2020 – Hong Kong real estate professionals need to look beyond short-term market turbulence and focus on longer-term strategies, as occupiers undergo cost saving exercises, landlords target retention and long-term occupancy, and investors explore acquisition opportunities in a buyers’ market with low interest rates expected to persist in 2020, according to the Quarterly update by Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services. These findings are not just the direct result of COVID-19, but the compounding impact of prolonged global, regional and local trends as economic growth and leasing momentum are expected to slow further with overall Grade A office rents likely fall by 14% YOY in 2020.
Although scheduled future Grade A office supply is limited, it’s expected the office leasing momentum will remain generally slow this year due to uncertainty in the market. Additionally, occupiers are becoming more cost conscious in line with the economic slowdown, with some opting to downsize and explore cheaper office space, buildings and locations.
Commenting on the market activity, Fiona Ngan, Head of Office Services at Colliers said: “We are witnessing occupiers react to the market to ensure they are resilient in the face of uncertainty. They are taking essential steps to protect their position, but this doesn’t mean opportunities are drying up. Well-established firms with stable capital flow could look to relocate into a traditionally competitive space in the CBD as growth in vacancy rates and greater rental corrections in 2020 provide more options.”
From a Capital Market perspective, there is hesitation from institutional investors as Hong Kong investment sales declined 58% QOQ and 90% YOY to HKD3.4 billion in Q1 2020. Current market conditions are expected to persist throughout the remainder of the year which will see property prices come under pressure across different sectors providing investors with ranging opportunities.
Antonio Wu, Deputy Managing Director of Capital Markets at Colliers, discussed: “The majority transactions that took place in Q1 were done by local private investors that are well-established with a strong local knowledge. These individuals will continue to be active as they seek to diversify and consider alternative opportunities, but it can be expected that there will be misalignment on price expectations which could see an extension in negotiations for discounted assets. Institutional investors need to take this into consideration as they start to become more active in the market.”
Providing a bright spot, the industrial sector demonstrated relative resilience accounting for half of the overall transactions recorded during Q1 2020 with industrial assets becoming a trend that could continue as investors look for conversion opportunities. Further areas of opportunity include strata-title offices and hotel assets with investors being able to capture rebound potentials.To learn more about Hong Kong’s real estate performance and expected trends, download the latest flash reports from Colliers International: Office and Capital Markets.