• Home prices saw the steepest drop in the last decade, down by as much as20% from the August peak and look to drop by another 10% in 2019 amid poorsentiment
• Property investment market recorded all-time highs in both thetransaction volume and considerations in 2018, but the record is unlikely to berepeated in 2019
• Greater Central office rents are projected to drop by 5% in 2019 due todampened demand, but rents in non-core areas will be supported by cost-drivenrelocations
• Demand for retail expansion faces headwinds, but strong growth in PRCtourist numbers could be a silver lining that supports retail rents in coreareas, except Central.

HONG KONG,CHINA - Media OutReach - 6December 2018 - Cushman &Wakefield, a global leader in commercial real estate services, noted thatglobal uncertainties have made an impact on the Hong Kong property market,leading to falling home sales and prices, alongside decelerating growth inoffice and retail rents in core areas. The property investment market has begunto cool with transaction volumes in Q4 expected to shrink to half the level inQ3. The outlook for the first half of 2019 is muted for all sectors.

Residential: Sentiments chilled after robust H1

Home salespeaked in Q2 (18,881 residential S&Ps) this year buoyed by positivesentiment early in the year. With the U.S. and China beginning to cross swordsover bilateral trade issues towards the end of Q2, however, monthly residentialS&Ps began dropping below 5,000 in August. As market sentiment hasweakened, home sales in Q4 dropped further to 4,243 and 2,635 in October andNovember respectively, and the whole quarter is expected to close at about 9,400S&Ps, making Q4 2018 the worst performing quarter since Q1 2016.

Mr Alva To, Cushman & Wakefield's Vice President,Greater China & Head of Consulting, Greater China commented, "Primary sales surpassed secondarysales for the first time since late 2015, a sign that buyers preferred to be onthe sideline while landlords who had reaped the profits during the up-cyclewere more willing to sell on some discount. However recent sales of primaryprojects are also sluggish against the weak market sentiment."

In fact, thedecline in home prices has accelerated since August, with the price ofrepresentative estates such as City One Shatin and Taikoo Shing dropping by20.0% and 15.7% respectively as of December, whereas Residence Bel-Air and TheHarbourside have dropped by 11.3% and 14.0% respectively over the same period.In other words, the gains in prices recorded during 2018 have been erased formany estates.

Mr To said,"The last major drop in home prices from mid-2015 to mid-2016 was inducedby policy factors. This time, however, the drop is much steeper, and we expectthe impact of global uncertainties, including trade tensions and rates moves,will continue to cloud the market outlook over the near term. We expect salesto be mainly driven by the launch of primary projects and those secondary homesat major discounts, and home prices could drop by another 10% next year, beforefinding support from sales of much discounted homes."

Investment: Record-high 2018 transaction volume andconsiderations amid strong headwinds

From January to theend of November, a total of 409 major transactions (each with a considerationof over HK$100 million) for a total consideration of HK$220.6 billion wererecorded, reflecting an all-time record high for the property investment marketin 2018. However, the gains concentrated in H1 of the year, with souring buyersentiment leading to muted investment activity in H2.

While volumes in Q1(143) and Q2 (142) were at quarterly record-high levels, the market began tocool in Q3 following the growing trade tensions, with transaction volumes in Q3dropping 37% from the Q2 level. With more buyers moving to the sidelines, transactionvolumes have dropped further in recent months, with volumes in Q4 expected tobe less than have those in Q3. The total considerations in Q4 thus faraccounted for only 22% of the value in Q3.

Mr Tom Ko, Cushman & Wakefield's ExecutiveDirector, Capital Markets in Hong Kong, commented, "With 409 majortransactions recorded from January to now, 2018 is set to be anotherrecord-breaking year for the investment market, although the gains mainlyhappened during the first half of the year. Since Q3, seasoned investors havebecome more prudent in the face of the growing global uncertainties. We expectthe market to remain cool in 2019 as seasoned investors remain cautious, untilthere is more clarity to the external situation."

"Luxuryresidential took the lion's share in terms of transaction volume in Q4 thus farand we expect the investment interest will still focus on this asset class asmost transactions will be underpinned by end-user demand. In view of strongdemand fundamentals and government policy support, industrial properties arelikely to remain favorable over other commercial asset classes," added MrKo.

Office:Central rents remain highest globally but occupier demand dampened byuncertainties

Global uncertainties have affected the Hong Kong office marketsince Q3, the average Grade A rent in Greater Central edging higher by only0.2% QoQ to HK$138.2 per sq ft per month (net effective rent) as of Q4. ThePrime Central rent stood at HK$164.8 per sq ft per month, up 0.3% QoQ.

The CBD has been impacted by external factors more than otherdistricts due to a fall in take-up by PRC firms in the face of a continuingexodus by MNC's. As a result, the territory-wide net absorption fell to a levelof -11,744 sq ft in Q4, moving into negative territory for the first time intwo years.

While this was a result of returning stock in most districtsoverwhelming net take-up, it is worth noting that leasing activity in someareas such as Hong Kong East and Hong Kong South was relatively robust,supported by cost-driven relocations. This has also led to increases in rentsin these two districts during the last quarter, by 2.3% and 6.7% respectively.

Despite the fluctuation in net absorption over the course of 2018,the overall availability of Grade A space in the Hong Kong office marketremained stable during the year at around 7.0%. Mr John Siu, Cushman & Wakefield's Managing Director, Hong Kong,said, "In Q4, whilst business activity slowed due to on-going tradetensions, the lack of available space in Greater Central where availability isat 5.1% (Prime Central at 4.2%) meant that rents were not negatively impacted.Cost sensitive occupiers will continue to be attracted to the choice, qualityand value offered in Kowloon East (13.0% vacancy) and Hong Kong South(11.1%)."

The co-working sector has been a significant source of occupierdemand this year, particularly with PRC operators behind some of the biggestleasing deals in core areas that intensified the competition for market shareagainst more established western operators. Mr Keith Hemshall, Cushman & Wakefield's Executive Director, Headof Office Services, Hong Kong said, "The co-working sector has shownremarkable growth to date, but we expect expansions to slow in 2019 amongst allbut the largest players amid a more cautious business environment."

Retail:Core rents came around, outlook mixed

Compared with other sectors, the impact from global uncertaintieson the retail leasing market has been less severe, as the sector was propped upby substantial growth in tourist numbers, particularly those from MainlandChina, and strong sales of jewelry and watches. Market sentiment was robustduring the first half of this year, before turning more cautious in Q3 in theface of the growing trade tensions. However, tourist arrivals remained strongin Q4, thanks partly to the launch of the XRL and the HKMZ Bridge, which isexpected to support retail sales towards the year end.

Core retail rents in Q4 thus remained stable, with all districtsgaining from 0.3% to 1.2% QoQ, except for Central where rents continued to dropby 1.6%. In contrast to a YoY drop in rents by 3.3% to 5.8% as of Q4 2017,rents in Causeway Bay, Tsimshatsui and Mongkok have increased by 1.5%, 2.3% and5.6% respectively since January 2018, while Central rents dropped by 6.3% overthe same period. The rental performance of Causeway Bay, Tsimshatsui andMongkok have come around in 2018 thanks to improved market sentiment,especially in the first half of the year. In addition, vacancy in core areascontinued to improve over the course of 2018, with zero vacancy in Causeway Bayfor both Q3 and Q4.

Mr Kevin Lam,Cushman & Wakefield's Executive Director, Head of Retail Services, HongKong, commented, "The low vacancy incore areas has been critical to the stabilizing of retail rents. However thedemand for retail expansion on the part of operators is weak amid the ongoinguncertainties. We expect rental growth of 1% to 3% in core areas in H1 2019,with the exception of Central where rents are projected to see a drop of 3% to5%."

F&B rentals dropped continuously throughout 2018, despite asteady increase in F&B spending. Mr Lam commented, "The F&B sectoris challenged by a perpetual lack of manpower and increase in labor costs,which greatly hindered the ability of operators to expand. The core areas havebeen hit harder than the non-core areas, where cheaper manpower is more readilyavailable. This is particular the case for Causeway Bay where F&B rentsdropped by 8.4% year-to-date."

Being in the city with the highest retail rents globally, localoperators continually look for breakthroughs in the retail scene by introducingexciting and relevant customer experiences. Mr Lam said, "Some of thebest-performing trades in the retail leasing market this year, such asathleisure and multi-brand cosmetics/personal care, have invested inpositioning and store designs in order to create better experiences for theircustomers. This will be a trend to watch in 2019 when operators will likely beconservative in terms of expansion, in the face of externaluncertainties."

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About Cushman & Wakefield

Cushman& Wakefield (NYSE: CWK) is a leading global real estate services firm thatdelivers exceptional value by putting ideas into action for real estateoccupiers and owners. Cushman & Wakefield is among the largest real estateservices firms with 48,000 employees in approximately 400 offices and 70countries. Across Greater China, there are 20 offices servicing the localmarket. The company won four of the top awards in the Euromoney Survey 2017& 2018 in the categories of Overall, Agency Letting/Sales, Valuation andResearch in China. In 2017, the firm had revenue of $6.9 billion across coreservices of property, facilities and project management, leasing, capitalmarkets, advisory and other services. To learn more, visit www.cushmanwakefield.com.hk or follow us onLinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)