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A buoyant IPO market, big potential in data centers, and positive buy-side activity offer bright spots for Hong Kong’s property market in 2020 despite chronic shortage in land supply

HONG KONG, 21 January 2020 –  Early indicators are brightening the prospects for Hong Kong’s property sector in 2020, according to an annual local market outlook report released today by Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services. This, after the company’s regional outlook report affirmed the city’s leading position as a top occupier location in Asia, even with the near-term pressures. 

“Given ongoing tensions at home and abroad, it is reasonable to expect leasing and investment momentum will remain somewhat slow in Hong Kong this year. With that said, an increase in activity in late December and early January, combined with anticipated corrections in rental and capital values across different property sectors in the first half of 2020 could make the momentum steady and more sustainable,” said Rosanna Tang, Head of Research, Hong Kong and Southern China, Colliers International.
CK Lau, Managing Director, Valuation and Advisory Services, emphasized that Hong Kong’s lack of new buildable land will continue to negatively impact the private sector housing supply, and that rebalancing supply with demand is essential. He encourages the government to recommit to achieving its supply targets, which would reduce market fear and be another step towards providing the people of Hong Kong with more choice in terms of accommodation. 

Capital Markets and Investments
“After last week’s, ‘magnificent seven’ moment, we expect a buoyant IPO market that will positively impact Hong Kong’s business environment overall. In the property sector, the next 12 months should be a buyer’s market, with cash-rich investors looking for assets at discounted prices, which will likely prolong negotiation periods. Property yields are likely to pick up, with prices that may be more volatile than rents,” said Antonio Wu, Deputy Managing Director, Capital Markets.
“While a slowdown in logistics and trade activities have caused warehouse capital values and rental values to decline by 1.2% and 1.8% YOY respectively, there continue to be opportunities presented by Revitalisation 2.0 initiatives, and the future depends largely on data centre development. In addition, the settlement of the US and China Trade war should grow the investment appetite and offset any negative impact,” said Joseph Lam, Associate Director, Industrial.  
“With limited supply, we expect office rents to drop by 8% YOY for Hong Kong as a whole, and 13% YOY for the Central Business District (CBD). Historically, office rents rebound quickly, and we believe that those MNC tenants who are recommitting to the market may take advantage by relocating to the CBD in the near term,” said Fiona Ngan, Head of Office Services.
“Prime retail rents will continue to adjust in 2020, but we don’t expect a steeper decline than we saw in 2015 and 2016. Amid the social unrest in HK, retail sales have significantly dropped since the beginning of 2H of 2019. This is directly impacting brands for which sales are largely absorbed by tourism. Despite the sales decline across most if not all retail trade in HK; Modern F&B, Fitness and Lifestyle supermarkets that capture a good percentage of local consumption will be able to sustain and hold up in the existing retail market landscape,” said Cynthia Ng, Director, Retail Services.  
“While uncertainties from the social unrest and slower economy will likely affect buyer sentiment, the downside risks of residential prices should be limited and offset partly by strong pent-up demand, low interest rates and relaxed LTV ratios,” said Letizia Garcia Casalino, Head of Residential Services.  

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