This week will see Financial Secretary, Paul Chan Mo-po announce the 2021/22 Hong Kong Budget. Despite the city seeing economic improvement towards the end of last year, its recovery is far from complete and requires the government to take decisive action to stimulate economic growth and re-energise core revenue streams, and where possible, explore new sources of commerce for the city.
Prior to what is undoubtedly an important budget, we hear from two of our leading brokers, Sayaka Matsumoto, Senior Associate Director Office Services and Russell Lam, Director Capital Markets & Investment Services, on what key movement they are seeing in the market leading up to the announcement in this week’s snippet.
In 2020, leasing momentum softened as the local economy weakened due to the combined impact of the US-China trade tension, domestic social unrest, and the COVID-19 outbreak. This resulted in annual net absorption in 2020 of -1,769,900 sq. ft., the lowest level since 2001 with us seeing occupiers become more cautious and seek cost-effective real estate strategies.
At the start of the year, we have seen an increase in activity in Central, especially in some premium assets such as IFC where tenants have opted to take advantage of the occupier-centric market to either extend contracts, expand or upgrade their current space. Notably, the same trend hasn’t emerged in Island East with only a hand full of transactions completing in the grade A office market. This is partly due to competition from Kowloon East where landlords have been more flexible providing greater negotiation on terms and rents.
For occupiers that are driven by cost savings, there is a strong business case to relocate to Kowloon East opposed to Island East with major tenants achieving effective rent of low $20s. In addition, the tenant mix who would consider Island East, are typically in trading, technology, media and telecom, and retail sectors that are being affected the most by the pandemic.
Real Estate investment
Similarly to the office market, investors adopted a wait-and-see approach in 2020 as market conditions created high levels of uncertainty and even travel restrictions that deterred some site visits and investment, especially for those organisations with overseas decision-makers.
However, real estate investment has seen improvement in terms of sentiment, especially in February this year throughout residential properties, neighbourhood malls, retail and industrial properties. With the vaccination of the population expected to start this quarter, the market has good reason to remain optimistic for the outlook for real estate investment in 2021.
For luxury residential assets, we have seen the top floor penthouse at 21 Borrett Road fetch record unit price for an apartment in Asia, with a 3,378 sq. ft. SA unit with 2,131 sq. ft. top roof sold for HK$459 million. There has also been the sale of two sizable land plots awarded at the top end range of market expectation, namely the sale of NKIL6603 land plot in Kai Tak to CK Assets for HK$10.28 billion (HK$15,861 psf. AV), and the sale of RBL 1211, 9-11 Mansfield Road, the Peak land plot to a consortium for HK$7.25 billion. Taking this sale into account, we believe the residential market overall will remain a strong sector in 2021.
The same with the industrial sector which has seen a pick-up in activities with the Smile Centre and 49% undivided shares in Seapower Industrial Building changing hands in January this year. Sales of neighbourhood retail and boutique sized shops in core retail locations also remained, with Continental Holdings acquiring shop A and B on G/F and the whole of 1/F of Hart Avenue Court, 19-23 Hart Avenue, Tsim Sha Tsui.
If you would like to know more about the market, or what options face you as a real estate professional or occupier in Hong Kong, don’t hesitate to contact our experts to see how we can help accelerate the growth of your business.