HONG KONG, 13 July 2021 – Leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI), shares its latest real estate figures in its Colliers Quarterly for Q2 2021, covering the investment, office leasing, retail and industrial sectors.
As we reach the halfway point of 2021, Colliers in Hong Kong believes that the real estate market is at the ‘turning point’. Overall sentiment has improved, and the key sectors are starting to see the bottom of the market, or have already rebounded.
“Looking back to the start of the year, we held the view that Hong Kong’s real estate market would see recovery in 2021. At the mid-year point, we see this as a landmark and a ‘turning point’ where recovering demand and growing confidence have taken place in the market. The core sectors will kick on from this point, and we expect the market across multiple sectors to bottom out before year-end,” said Rosanna Tang, Head of Research, Hong Kong & Greater Bay Area.
High levels of investment activity leads to the market bottom in 2021
Overall investment sentiment has improved as we see solid economic recovery and the tapering of COVID cases. This renewed confidence has led to the growth in the total investment transaction volume, which reached HK$25.5 billion (US$3.3 billion) in Q2 2021, up 168% QOQ and 190% YOY.
The industrial sector was the first area to rebound and has been subject to high demand from investors, but limited quality supply has led certain investment capital flow to other sectors like office and retail in Q2, with QOQ transactions growing by 278% and 276% respectively from a low base.
“One of the biggest turning points has been the return of institutional investors. They picked up the pace in deploying capital, accounting for 71% and 65% of the Q2 2021 and YTD 2021 commercial transaction volume, respectively. The strategic drivers behind the activity saw funds eyeing defensive or stable income streams with strata-titled office in the CBD, neighbourhood malls, and highly lucrative cold storage assets being of interest,” said Thomas Chak, Executive Director of Capital Markets & Investment Services.
“Whilst we forecast the price level for most commercial sectors to bottom out in 2021, the next few months should provide a window of opportunity for investors to hunt for these assets before prices begin to rebound from 2022 onwards,” added Chak.
Office leasing: Flight-for-quality an emerging trend in H2 2021
Leasing activity has picked up in the CBD, with Central and Admiralty leading the way with quarterly net take-up rebounding to +68,300 sq. ft. NFA (6,350m²), the first positive quarter since Q2 2018. PRC firms and financial companies led the charge and chose to relocate following the opportunity to find more affordable lease options.
The rental drop further narrowed in Q2 2021, with the overall and CBD rents decreasing by -1.6% and -1.0% QOQ, respectively, compared to the -2.0% and -1.6% QOQ drop in Q1.
Fiona Ngan, Head of Office Services, said: “We expect to see leasing momentum pick up further towards the end of 2021. The recently-launched Wealth Management Connect will likely bring new letting demand from PRC financial services firms, with them likely seeking high-quality Grade A office space around core locations.”
Overall rents will generally stabilise towards the end of this year, with our view being both overall and CBD rents will fall by -6% YOY, with H2 2021’s rental correction falling at a slower rate.
High-street rent has bottomed out
Retail sales grew by 11.2% YOY in Q2 2021 from the low base of last year, driven by the growth of sales in apparel, luxury goods and electrical goods.
“Backed by the higher vaccination rate, eased social distancing measures and the rollout of the Consumption Voucher Scheme, the worst has passed for the retail sector. We forecast full-year high-street rents to fall by 3% YOY in 2021, compared to -21% and -28% YOY recorded in 2019 and 2020, respectively,” said Cynthia Ng, Executive Director of Retail Services.
The change in consumption pattern and attractive high-street rents offer retailers, such as lifestyle and international ath-leisure brands, discounted luxury, and creative F&B concepts, the opportunity to expand their footprints in Hong Kong. Shopping malls are also rolling out a variety of new and creative pop-up exhibitions to offer a different shopping experience to consumers.
“Amid the change in shopping behaviour, uncertain timeline over the re-opening of the borders, and the global travel restrictions remain in place, the retail sector will continue to be dependent on local consumption for at least the next one to two years. Whilst leasing demand has picked up and recovered gradually, high-street rental is anticipated to remain flat for H2 2021 as landlords look for sustainable operators,” added Ng.
Industrial: Landlords firm on rents with the bright prospects of the sector
The industrial sector outperformed other key property sectors and continued to recover, with capital and rental appreciation recorded in Q2. Warehouse rents increased 1.1% QOQ, contributing to a +3.5% rental rebound in H1 2021 after a -5.3% YOY drop in 2020.
John Davies, Head of Kowloon Office and Industrial Services, stated: “The industrial sector has seen positive performance so far this year, and we forecast YOY warehouse rents and prices to adjust by +5.0% and +6.8% in 2021, respectively.”
On the investment front, strata-titled industrial transactions of less than HK$100 million grew 280% QOQ from a low base, reaching HK$4.4 billion (US$0.6 billion).
“Given the strong export rebound (+24% YOY) and rise in food consumption, we recommend investors pay attention to cold storage in the next three years. This becomes even more appealing when considering the favourable government policy for industrial redevelopment, including the revitalisation scheme and standard rate measure, which is likely to continue positioning industrial assets as an attractive investment,” added Davies.
“Given the relatively stable demand for these assets and limited new supply in the next five years, we expect landlords will likely stay firm on rents during renewals,” Davies concluded.
To find out more about how each key sector has performed during Q2 2021 and explore their hidden opportunities, download our Colliers Quarterly for Q2 2021 – Investment Market, Office Leasing, Retail and Industrial.