HONG KONG, 15 April 2021 – Leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI) has today released the Quarterly Reports for Q1 2021 to evaluate Hong Kong’s office leasing and property investment markets. The Quarterly Reports explore factors affecting both sectors and their hidden opportunities.
Despite the overall negative net absorption of office space recorded at -459,400 sq. ft. NFA as of Q1 2021, office leasing sentiment has slightly picked up. The overall Grade A office rents dropped by 2.0% QOQ in Q1 2021, the lowest drop over the past three quarters which demonstrated the pace of rental correction moderated. There have been more enquiries and inspections witnessed across different submarkets, particularly around the CBD area.
For the property investment market, total investment volume reached HK$10.1 billion (US$1.3 billion) in Q1 2021, up 30% YOY. Transaction volume saw positive YOY growth in office, industrial and retail sectors. Institutional investors have become more active where their transactions accounted for over half of the total investment volume in Q1 2021. Most of them favoured industrial assets.
“The implementation of the vaccination programme globally should help control the pandemic. Therefore, we expect demand for office space to further pick up in the second half of this year, with the Grade A office market leasing momentum gradually improve,” said Rosanna Tang, Head of Research, Hong Kong and Greater Bay Area.
“We also expect to see the investment market sentiment to further recover and bring for a higher level of transactions for this year, especially comparing to the low base of 2020,” added Tang.
2021 office leasing market remains tenants centric
We forecast overall and CBD rents to fall 7% and 8% YOY, respectively in 2021. International finance and MNC firms continued to show signs of downsizing and have relocated some of their workforce to non-core locations. Pockets of demand is seen from PRC Occupiers, and some MNC wealth management, private banking and law firms.
“We have seen more inspection activity taking place across the market in Q1, as some occupiers were looking to take advantage of the lower rents and wider available options. To better secure office occupancy, we recommend landlords to be more flexible leasing,” said Chris Currie, Head of Occupiers Services, Hong Kong.
Defensive assets to generate long-term income
Among the total investment transaction volume of HK$10.1 billion in Q1 this year, 53% were industrial assets, including cold storage and data centres. This was backed by the long-term macro drivers such as the growing 5G network, cloud computing, e-commerce and the rising F&B demand. In addition, 69% of the retail transactions concluded in Q1 were neighbourhood retail assets.
“Over the past quarter, we observed increased investment activities from both local and overseas investment fund managers, with most of them acquiring industrial properties under their portfolio for seeking long-term returns. We recommend investors pay attention to defensive assets, such as industrial properties and retail malls which could generate long-term growth potential,” said Stanley Wong, Senior Executive Director, Capital Markets & Investment Services.
Solid investment appetite and government initiatives to facilitate transaction rebound
We expect the transaction volume to continue to rebound in the second half of 2021. Growing investment appetite from Mainland and local investors is now being amplified by a return of institutional investors, as well as the recent changes in government policies.
“With the solid investment appetitite, we believe the bid-ask spread could narrow in the second half of 2021, where sellers will become more realistic in their asking price during negotiation,” said Thomas Chak, Executive Director, Capital Markets & Investment Services.
Recent changes in government policies should provide some positive spins to the investment market
“The removal of the double stamp duty on non-residential property transactions implemented in November 2020 lowers the entry cost for commercial transactions. Moreover, the pilot scheme for charging land premiums at standard rates for lease modifications for industrial properties redevelopment should streamline approval process, while allowing investors to better estimate the redevelopment cost,” added Chak.
Find out more about how the office leasing and property investment sectors performed during Q1 2021 and explore their hidden opportunities by downloading the Colliers Quarterly Reports for Q1 2021: office leasing and property investment.