Uncertainty Continues to Cloud Markets in Early 2021　Forecast Points to Signs of Recovery by Q2 and Q3

• Residential
  Market: Home prices remain on track to suffer a drop of
  about 10% for the whole of 2020. The market is expected to stabilize in the second
  quarter of 2021.
• Investment
  Market: Number of transactions and investment volume in 2020 are expected to drop
  to a 10-year new low. In 2021, however, the total number of non-residential transactions
  is forecasted to rebound to a level exceeding that of 2019.
• Office Market: Office
  demand remained weak in Q4, pulling net absorption YTD down to -2 million sq.ft.,
  the worst on record.
• Retail Market: While
  retail rental declines showed signs of slowing in Q4, they are expected to
  remain under pressure through 1H 2021; An emerging trend in F&B of food
  hall concepts is expected to grow in the near term. 

HONG KONG SAR – Media
OutReach – 9 December 2020 – 2020 has undoubtedly
been one of the most challenging years for Hong Kong in recent decades. The
property market, as one of the key economic pillars of Hong Kong, has been hard-hit
at multiple levels. Although the outlook remains gloomy, there are early signs
of recovery towards Q2 or Q3 2021 once a vaccine becomes available and if
various sectors are able to embrace new and flexible strategies to grow.

 

The Residential Market:

Mr Alva To, Cushman & Wakefield‘s Vice President,
Greater China & Head of Consulting, Greater China, commented, “The first-hand
market remained strong in Q4, mainly due to strong pent-up demand and favorable
mortgage benefits. On the other hand, the second-hand and luxury markets continued
to suffer as a result of economic weakness caused by the pandemic. As the economy remains weak, we forecast the residential
market to remain under pressure for the remainder of 2020 and into Q1 2021. Though
much depends on the course of the pandemic and the timing of a vaccine, the
market is expected to begin to stabilize in Q2 2021 at the earliest.”

 

Property transaction volumes in terms of Sales and
Purchase Agreements (S&Ps) in 2020 fell to the second lowest level in the
past decade, recorded only 73,253 YTD. The decline was largely driven by a drop-off
in non-residential transactions, which fell to the lowest level in a decade, and
even lower than during SARS.

 

Residential S&Ps were down by 3%

q-o-q with the expectation that they will continue to edge
lower in December as the city is hit by a fourth wave of COVID-19 cases. Among
residential segments, the impact on the mass market was relatively mild, with prices at City One and Taikoo Shing down by 5.4% and 12.6% y-o-y
respectively.

 

The impact on the luxury residential segment was more severe as some estates
have suffered from a decline in mainland Chinese demand during the pandemic.
Prices at Residence Bel-Air (Phase 2) fell by 10.8% in 2020 while those in the
Harbourside plummeted by nearly 25% in the year.

The Investment Market:

The Investment market remained subdued in Q4 2020, capping a challenging
year in which the overall real estate investment fell to the lowest level in
the past decade. As of today, a total of only 169 major transactions (each with
a consideration of over HK$100 million) have been recorded. The commercial
property sector was hardest hit in the year with just 60 major transactions
recorded, down further from the 89 transactions recorded in 2019. 

 

Mr Tom Ko, Cushman & Wakefield’s Executive
Director, Capital Markets in Hong Kong, said, “The commercial property sector was hit the hardest in 2020 with total transactions in in
the year down by more than 70% from the recent peak in 2018. Favorable
factors including the relaxation of mortgage rates and the abolition of double
stamp duty on non-residential properties offered a temporary boost especially for
small-scale transactions. The investment market is expected to bottom out in
2021 and the number of non-residential transactions is forecasted to rebound to
a level exceeding that of 2019.”

 

Overall
investment volume in Q4 remained at a similar level to Q3, while investment
into primary residential remained the most active among all sectors, accounting
for almost half of the total transactions. The commercial transaction volume doubled in Q4, but
was largely attributable to the en-bloc sale of Cityplaza One in Hong Kong East
for HK$9.85B.

The Office Market:

Grade A office rentals extended their declines in Q4 for a
seventh consecutive quarter, with the overall average rent in Hong Kong falling
5.5% q-o-q and 18.7% YTD, returning them to their level in Q2 2015. Rents in
Prime Central and Greater Central down by 20.9% and 21.3% YTD respectively,
while all submarkets continued to come under significant pressure as demand remained
weak.

 

Weak demand pulled
net absorption YTD down to -2 million sq.ft., in what was the worst
performance on record. Overall availability climbed to 12.1%, the highest
level since Q1 2005, as availability in all districts with the exception of
Hong Kong East,  climbing into double
digits in the quarter.

 

Mr. John Siu, Cushman & Wakefield’s Managing
Director, Hong Kong, commented, “Hard hit by the
pandemic, 2020 was extremely challenging for companies, and the weakness is likely
to extend into 2021 with rents forecast to fall further by as much as 16% and
availability climbing to about 14%. Net absorption is forecasted remain in negative territory,
ranging from -650,000 to -700,000 sq. ft. as demand is set to remain weak in 2021.
Despite the limited new supply scheduled for 2021, the 4.2 million sq. ft. new
supply from nine projects planned in 2022 is expected to continue to weigh on
rentals. Should the COVID-19 vaccine become available by mid-2021, that should
support some recovery in demand.”

 

Mr. Keith Hemshall, Cushman & Wakefield’s Executive Director &
Head of Office Services, Hong Kong, commented, “Office rents will continue their
downward trajectory as demand remains weak and availability rises. Large occupiers with leases expiring
in 2022/23 will seek to leverage against over four million square feet of new Grade
A supply completing in 2022. Decentralization will accelerate as occupiers seek to cut costs and
accordingly Landlords in core districts will come under increasing competition
to retain existing tenants and backfill vacant space, resulting in increasingly
favorable packages being offered. Meanwhile, small occupiers will continue to consider serviced offices as
an option to maintain flexibility and avoid upfront capex. The service office
sector continues to evolve as Landlords are now entering the market in direct
competition with established players.”

The Retail Market:

The retail
market continued to be hard-hit by a fourth wave of COVID-19 cases in Hong
Kong. Retail sales in the first 10 months of 2020 dropped by 27% y-o-y, led by
the decline of jewelry & watches (57.3%) and medicine and cosmetics
(51.8%).

 

Retail sales across most sectors
remained weak through October, as sales remained reliant solely on local
consumers in the absence of tourist arrivals during the pandemic. Retail sales of daily necessities remained resilient due to
social distancing measures, with supermarket sales up 10.3% y-o-y. Vacancy
rates across submarkets remained elevated while dipping slightly in Causeway
Bay, but it may begin to fall in coming months as some landlords turn to
short-term leases to fill spaces.

 

Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head
of Retail Services, Hong Kong, commented,
“The retail market
had a tough year in 2020 as one of the sectors hardest hit by COVID-19. We do
believe rentals will stabilize in 2H 2021 when tourists are likely to return as
a result of effective vaccination. Meanwhile, with
flexible leasing package for small tenants with innovative centralized
management, we see potential for a growing trend in food halls to support the
F&B sector.”

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Photo Caption

From Left to Right: Mr. Keith Hemshall,
Cushman & Wakefield’s Executive Director & Head of Office Services,
Hong Kong, Mr Tom Ko, Cushman & Wakefield’s Executive Director, Capital
Markets in Hong Kong, Mr. Keith Hemshall, Cushman & Wakefield’s Executive
Director & Head of Office Services, Hong Kong, Mr Alva To, Cushman &
Wakefield’s Vice President, Greater China & Head of Consulting, Greater
China (Centre), Mr. John Siu, Cushman & Wakefield’s Managing Director, Hong
Kong