General market overview

Polly Chu – Partner

Hong Kong is one of the most densely populated regions in the world. As a thriving financial centre in Asia, Hong Kong has consistently emerged as one of the world's most attractive real estate markets to invest in, especially given its limited land supply.

Hong Kong has been experiencing social tensions since mid-2019 and the outbreak of the Covid-19 pandemic in 2020 has changed the overall climate of Hong Kong's property market. However, with the roll-out of the vaccination programme and China's on-going economic recovery, there has been a gradual recovery in real estate demand in 2021.

Despite the Covid-19 outbreak, local consumption and online retail have picked up as the pandemic has substantially changed the business climate of the retail industry. With the economy slowly recovering, coupled with the introduction of consumption voucher scheme by the Hong Kong Government and the anticipated relaxation of the travel ban, rents have rebounded and stablised in 2021. Retailers may invest their business in districts with a focus on local customers rather than mainlander tourists and landlords of commercial buildings or shopping malls tend to have a more diversified mix of tenant to attract local customers.

For the office leasing market, the reduction in rental rates for many offices and commercial establishments in the central business district has led to a narrowing in rental gap between the central and other decentralised districts, attracting tenants in non-core districts to opt for office space in the central business district. Whilst the recovery in the office leasing market is relatively slow, it is expected the anticipated gradual relaxation of travel ban will bring new letting demand from Chinese investors who are keen to seek for office spaces in the core business districts.

The recovery in industrial property market is particularly resilient, outperforming other key property sectors. The pandemic has boosted the growth of e-commerce and demand for storage space, warehouse, data centre, etc. When seeking industrial spaces, operators and manufacturers will continue to prefer more modern logistics premises rather than simple storage spaces. The impact of 5G technology on e-commerce also points to growth prospects in cold storages and data centres. There have been a number of remarkable transactions for sale and purchase of industrial premises in 2021.

In March 2021, the Hong Kong government has also introduced the industrial revitalisation scheme, encouraging redevelopment by standardising premiums for land-use modifications for investors seeking to redevelop existing buildings for commercial or residential purposes. This scheme resulted in warehouses becoming the most sought-after assets.

The residential property market in Hong Kong cooled down for only a short period at the initial stages of the Covid-19 outbreak but has picked up gradually. Despite the overall contracting economy, residential housing demand remains high. Coupled with low interest rates, the residential property market has proved to be resilient. Furthermore, the gradual roll-out of residential properties by developers in 2021 in the first-hand market demonstrated signs of a steady recovery from the pandemic.

Covid-19 has changed the way how people work, live, play and learn. Several businesses are also exploring the retail market online which boost their search for physical stores in convenient locations as pick-up points of their goods. The travel ban has also prompted the demand for luxury assets such as yachts, private jets and boats with increasing financing transactions for such assets. Going forward, Hong Kong's property market is expected to rebound, with an increase in volume and value of the transactions. The outlook of the real estate market in Hong Kong remains optimistic as businesses resume to near pre-pandemic levels of operation.

Hong Kong has consistently emerged as one of the world's most attractive real estate markets to invest in, especially given its limited land supply

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