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Mid-year market outlook 2019: Business sentiment remains cautious, but it’s not all doom and gloom

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We recently presented our Hong Kong mid-year market outlook 2019, evaluating Hong Kong’s property markets for the first half of 2019. During our presentation we explored the factors affecting the office, residential, industrial, and residential sectors, as well as presenting an overview of what we can expect for the rest of 2019.

Overall, with US-China trade tensions easing after the G20 summit and political turbulence increasing in the city, business sentiment in Hong Kong remained cautious with no clear resolution in sight. While we don’t anticipate a doom and gloom scenario for the time being, we do see several opportunities for long-term stability in the lower interest rates, low unemployment rates, and the rise of the Greater Bay Area.

Still, a cautious sentiment hasn’t put a limit on the opportunities found in the market. And as we hear from our experts below, all the different market sectors are, in some form of another, being impacted by ongoing geo/political circumstances while finding their own ways forward.

Around the corners of the market...


Contributed by Thomas Chak, Executive Director of Capital Markets and Investment Services

The investment volume for commercial properties increased by 44% to HKD 97.6 billion in H1 2019 from H2 2018, with the market being particularly active in Q2 2019. The rebound in investment volume was mainly driven by a pick-up of transactions in the en-bloc office market, hotels and shopping malls.

Looking ahead we expect investment sentiment to stay cautiously optimistic for the rest of 2019. We believe commercial property prices will remain relatively firm throughout H2 2019, while funds and investors stay financially strong. Investors could consider districts with a more bullish rental outlook, such as Island East, and assets with relatively lower capital entry requirements and strong market fundamentals, such as neighbourhood malls. These can provide stronger growth potential for recurring income and capital appreciation of property value.


Contributed by Alex Lam, Senior Director of Office Services

Hong Kong’s business sentiment remained cautious in H1 2019, impacting the office leasing demand. For the rest of 2019, we do anticipate that more enterprises will keep a wait-and-see view towards major business decisions due to the global economic slowdown and the still unresolved trade war. However, according to our Hong Kong Annual Occupier Survey 2019, many enterprises are still confident in their business outlook over the next three years and are planning further expansions. For those occupiers looking to relocate, Island East and Kowloon East remain the most popular options.

Despite the overall positive net take-up in H1 2019, the leasing market in general was weakened compared to last year (46% lower than H2 2018 and 52% lower than H1 2018). Central/Admiralty recorded a negative net take-up for a fourth consecutive quarter, accounting for a total net take-up of -112,866 sq ft in H1. The softening demand from PRC firms and flexible workspace tenants coupled with increasing new supply, caused the overall Grade A office vacancy rate to rise by 1% over the last six months, with rents expected to drop 1.3% YOY by the end of 2019.

During Q2 2019, Wan Chai/Causeway Bay recorded the lowest net take-up and the largest rental decline among all submarkets, mainly due to tenant relocation to Island East which remains affordable despite having the strongest rental growth. In Kowloon, rents rose due to the decentralization trend and the addition of new quality office buildings, especially in Kowloon East, which lifted average rents.

Colliers expects the annual Grade A office supply from 2019 to 2023 to increase to 2.3 million sq ft on average, up 29% from the average of the previous five-year period. Still, with no major supply upcoming in the next two years and new developments in non-CBD areas to continue to shape the market, we recommend large occupiers have a long-term real estate strategy in place.


Contributed by Joseph Lam, Business Line Leader of Industrial Services

While the US-China trade truce proposed during the G20 meeting served as good news for Hong Kong, the city’s external trade sector remained weak. Total exports dropped 2.4% YOY during Jan-May 2019 and port container and air cargo throughput declining by 7.7% and 6.4% YOY, respectively. Hong Kong’s PMI also fell below the 50-point watershed level for the 14th consecutive month due to slower new business orders from China.

Unless trade tensions are completely resolved, the current truce should only provide limited support to Hong Kong’s import and export trade. However, a new air cargo screening policy should continue to drive the leasing demand for warehouse spaces; additionally, the Revitalisation Scheme 2.0’s relaxation of the plot ratio by up to 20% should encourage the redevelopment of more industrial buildings. For the remainder of 2019, warehouse rents, coupled with a tight vacancy and lack of new supply, are likely to stay on the uptrend. Rising 3.5% YOY by the end of the year.

We do expect the rise of 5G, the Internet of Things, and Artificial Intelligence and robotics to continue changing the market’s dynamics, including the development of the warehouse and industrial sector, as well as driving the demand for data centres in Hong Kong.


Contributed by Daniel Shih, Senior Director of Valuation & Advisory Services

Momentum for purchasing demand continued in H1 2019, with transactions surging 49% QOQ to 20,657 in Q2 – the highest number per quarter since Q3 2012. The current over-subscription in recent first-hand sales indicates that buyers are keen to purchase when prices bottom out, after considering the potential risk of price increases in the future. As a result, mass market prices rose a further 10.4% during the first five moths of 2019. But with banks tightening refinancing options and reducing cash rebates transactions should slow down in H2 2019, allowing the market to experience a modest adjustment.

Unlike H2 2018, a dovish interest rate outlook and liquidity expansion would provide greater support to the property market, even though the economy continues to face uncertainties with the US-China trade disputes lingering on. In the long run, land supply shortage and pent up demand will keep property prices up. For the luxury residential sector, prices increased slightly with purchasing demand staying solid as buyers expect a more stable interest rate outlook for the rest of the year.

For H2 2019, we believe the residential market could see a moderate adjustment with the raising of refinancing cost by banks and lower overall transactions.


Contributed by Cynthia Ng, Director of Retail Services

Despite a 14.9% YOY growth in visitor arrivals (29.7 million) for the first five months of 2019, a shift in purchasing patterns from luxury goods to daily necessities by inbound tourists has caused retail sales to drop by 1.8% YOY. The lower demand for luxury goods has also seen Central’s rents continue to edge down while some other core districts experienced a mild rental growth.

While enhancing their e-commerce offerings, retail brands have been relatively cautious of big-ticket expansions, searching for small sized stores ranging from 2,500 sq ft in exchange for better operational efficiency. Current global and local economic uncertainties may continue to affect Mainland tourists spending, and sales and leasing demand in Admiralty/Wanchai have been dampened by recent social events. Still, we believe domestic consumption sustained on the back of a robust labour market should support retail and sales performance for the rest of the year.

For H2 2019, we do expect first-tier high streets to remain attractive flagship locations, with rents staying relatively flat. However, the retail sector will be shaped by evolving consumer needs towards retail-tainment and interactivity with brands – whether it be through loyalty programmes, experiential shopping experiences, and/or the use of technology. This will drive changes to the tenant mix with a wider variety of new authentic product offerings added to the locations.

If you would like to know more about Hong Kong’s overall property market, or about any specific segments, or even out outlook for H2 2019, please don’t hesitate to reach out to either myself or any of the contributors to this article.

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Rosanna Tang

Head of Research, Hong Kong & Greater Bay Area


Hong Kong

Rosanna Tang leads the research team in Hong Kong and South China in Colliers. Driving different research papers and client-orientated initiatives, Rosanna has a deep understanding of all property sectors, research products, and client requirements. Rosanna is also one of the spokespersons in the company, and she frequently speaks in different industry events and media interviews. 

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