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Cautious optimism prevails as post-pandemic recovery faces global economic headwinds

HONG KONG, 11 January 2023 – Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has released its Hong Kong property Market Outlook for 2023, expressing cautious optimism as the city returns to normalcy after three years of disruption caused by COVID-19.

Kathy Lee, Head of Research for Colliers in Hong Kong, said: With the easing of anti-pandemic measures in Q4 2022, the highly anticipated reopening of China’s border in Q1 2023 and supportive government policies in attracting talent and foreign investment, Hong Kong can finally develop a sustainable road map for recovery.”

“We expect the retail and office sectors to lead post-COVID recovery in 2023. Meanwhile, external challenges such as the continuous global geopolitical tensions and a potential global recession will continue to pose risks to Hong Kong’s development. We believe that investors will continue to seek defensive assets with reliable recurrent rental income and higher yields to offset extra interest expenses, while the mass residential market will still face some downward pressure given the expectations of further interest rate hikes until mid-year,” added Lee.


In part, due to the uncertainty surrounding the full reopening of the border with China, which led corporates to adopt a wait-and-see approach, the Q4 2022 leasing market was muted and resulted in a small net take up. The annual net take up for 2022, however, came to 353,000 sq. ft. (32,800 sqm), representing the first year with positive net absorption since 2019. This comprised over 4 million sq. ft. of new Grade A office supply that came to the market and causing the vacancy rate to increase to 14.7%. Overall office rent dropped by 4.5% YoY, with only Kowloon East recording positive rental growth, while Central recorded the least rental correction on Hong Kong Island (-1.9% YoY).

In 2023, Colliers expects over NFA 3.2 million sq. ft. to come on the market with future supply pipelines concentrated in Kowloon and the New Territories. “The reopening of China’s borders will be a game-changer for the sector. As business travel resumes across borders, we expect more viewings and leasing enquiries which will likely strengthen office rent, with overall Grade A office rent estimated to increase moderately by 3% YoY. Among the key submarkets, we expect the CBD to benefit the most with 5% YoY growth compared to a dip of 2.3% YoY at the end of 2022,” said Fiona Ngan, Head of Office Services at Colliers Hong Kong.


A gradual H2 recovery from the effects of the 5th wave of the pandemic was offset by the 0+3 policy that led Hong Kong residents to resume outbound travel, resulting in a flat year for the retail market in 2022. Total retail sales dropped slightly by 1.1% YoY for the first 11 months, but several sectors recorded positive YoY growth, including medicines & cosmetics (+2.2% YoY) and jewellery & watches (+0.7% YoY). Restaurant receipts which recovered in H2, resulting in F&B becoming one of the key leasing demand drivers, while Causeway Bay had a positive 1.7% YoY rental growth among all high street districts.

“The retail market will face an optimistic sanguine sentiment in 2023. Upon the Hong Kong–China border reopening from 8 January, we should see a notable recovery in H2 reflecting a full year rental increase of up to 8%. High street shop performance will pick up steadily whilst neighbourhood malls will continue to grow supported by a strong local consumption market. A close eye should be kept on the drive and spending pattern of inbound tourists, especially in the upcoming months,” said Cynthia Ng, Head of Retail Services at Colliers Hong Kong.

In terms of new shopping mall supply, 2023 will register the largest increase in a single year within the past 20 years with 3.9 million sq. ft. (360,000 sqm). Shopping mall landlords are expected to run loyalty programmes, promotions and festive events to attract footfall. A fresh trade mix will be leveraged to drive and support overall sales performance.

Despite the border reopening, local consumption is expected to be one of the major drivers of demand for the Hong Kong retail market in the next 12 months. Premium lifestyle & accessories, health-related trades as well as the family entertainment sector will continue to expand.


The total value of exports dropped by 11% YoY during July-October 2022, reflecting reduced import demand. F&B, self-storage operators and retailers were the main contributors to industrial leasing activities in H2 2022, during which warehouse rents inched up by 2%, a less significant margin compared to H1. Third party logistics operators (3PL), the most important source of demand for industrial leasing, also slowed down their pace for leasing. At year-end, warehouse vacancy registered a slight increase to 3.3%, mainly due to the completion of the new ramp access logistics centre in Tuen Mun.

“Looking ahead, general industrial demand is likely to remain constant and push rent up by 2% in 2023. Despite a major new warehouse supply of 3.8 million sq. ft. GFA coming to the market in 2023. It is expected to be a temporary shortage of industrial supply in Hong Kong’s northern districts in the coming three years, before the new supply generated from industrial land sales related to the Northern Metropolis development become available in 2027. We foresee that warehouse and general industrial spaces with desirable specifications like high floor loading and height are still sought after by occupiers,” said Bill Chan, Head of Industrial Services at Colliers Hong Kong.


The investment market, which saw transaction volume fall to its lowest level in 10 years while turnover declined by 4% YoY at HKD70 billion, was negatively impacted in 2022 by the sharp rise in U.S. Federal Reserve interest rates as well as the suppressed rental level of commercial properties caused by the relatively strict quarantine measures in Hong Kong and China.

A total of 101 big deals were concluded, and at least six big foreclosure deals as the rate hikes and rebalancing of the real estate market in mainland China increased distressed sales in H2 2022. Against this backdrop, premises that offered high yield or a distressed sale emerged as hot spots in Q4. The capital value of Grade A offices and warehouses meanwhile dropped in the same period, as buyers wanted higher cap rates to offset extra interest expenses.

“We believe distressed sales will remain popular in Q1 2023 as they offer bottom fishing opportunities for investors, especially the cash-rich local investors and family offices. As market expectations are that the Fed’s rate hike cycle will peak in early 2023, we forecast investment volume will increase by 5% in 2023, picking up momentum in H2, subject to the full border reopening schedule. While retail and hotel sectors will be sought-after, we also expect Chinese buyers’ appetite for local assets to increase if the strong run of the USD and HKD comes to an end,” said Thomas Chak, Co-Head of Capital Markets & Investment Services at Colliers Hong Kong.


According to the Land Registry, the total residential transaction volumes in 2022 plummeted 39.4% YoY to 45,050 (excluding public housing), the lowest level since the Registry’s earliest records in 1997. While the reopening of the China-Hong Kong border is expected to stimulate the Hong Kong economy, Colliers believes that the interest rate hike cycle which is expected to continue into early 2023 will still cast a shadow over the mass residential market.

“As the economy revives, positive factors in boosting residential prices including stock market performance, increase in household income and restored investment confidence will hopefully bring the residential market back on the recovery track. Whilst further interest rate hikes will continue to weigh on home prices, we foresee an overall 5-10% YoY downward adjustment in 2023,” said Dorothy Chow, Executive Director, Valuation & Advisory Services at Colliers Asia.

Media Contact:

Alex Kaihau
Marketing & Communications 
+852 5971 3234

Nora Wong
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