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

December 09, 2020 - 09:54
Uncertainty Continues to Cloud Markets in Early 2021 Forecast Points to Signs of Recovery by Q2 and Q3

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

HONG KONG SAR - MediaOutReach - 9 December 2020 - 2020 has undoubtedlybeen one of the most challenging years for Hong Kong in recent decades. Theproperty market, as one of the key economic pillars of Hong Kong, has been hard-hitat multiple levels. Although the outlook remains gloomy, there are early signsof recovery towards Q2 or Q3 2021 once a vaccine becomes available and ifvarious 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-handmarket remained strong in Q4, mainly due to strong pent-up demand and favorablemortgage benefits. On the other hand, the second-hand and luxury markets continuedto suffer as a result of economic weakness caused by the pandemic. As the economy remains weak, we forecast the residentialmarket to remain under pressure for the remainder of 2020 and into Q1 2021. Thoughmuch depends on the course of the pandemic and the timing of a vaccine, themarket is expected to begin to stabilize in Q2 2021 at the earliest."


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


Residential S&Ps were down by 3%

q-o-q with the expectation that they will continue to edgelower in December as the city is hit by a fourth wave of COVID-19 cases. Amongresidential 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-yrespectively.


The impact on the luxury residential segment was more severe as some estateshave 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 theHarbourside plummeted by nearly 25% in the year.

The Investment Market:

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


Mr Tom Ko, Cushman & Wakefield's ExecutiveDirector, Capital Markets in Hong Kong, said, "The commercial property sector was hit the hardest in 2020 with total transactions in inthe year down by more than 70% from the recent peak in 2018. Favorablefactors including the relaxation of mortgage rates and the abolition of doublestamp duty on non-residential properties offered a temporary boost especially forsmall-scale transactions. The investment market is expected to bottom out in2021 and the number of non-residential transactions is forecasted to rebound toa level exceeding that of 2019."


Overallinvestment volume in Q4 remained at a similar level to Q3, while investmentinto primary residential remained the most active among all sectors, accountingfor almost half of the total transactions. The commercial transaction volume doubled in Q4, butwas largely attributable to the en-bloc sale of Cityplaza One in Hong Kong Eastfor HK$9.85B.

The Office Market:

Grade A office rentals extended their declines in Q4 for aseventh consecutive quarter, with the overall average rent in Hong Kong falling5.5% q-o-q and 18.7% YTD, returning them to their level in Q2 2015. Rents inPrime Central and Greater Central down by 20.9% and 21.3% YTD respectively,while all submarkets continued to come under significant pressure as demand remainedweak.


Weak demand pullednet absorption YTD down to -2 million sq.ft., in what was the worstperformance on record. Overall availability climbed to 12.1%, the highestlevel since Q1 2005, as availability in all districts with the exception ofHong Kong East,  climbing into doubledigits in the quarter.


Mr. John Siu, Cushman & Wakefield's ManagingDirector, Hong Kong, commented, "Hard hit by thepandemic, 2020 was extremely challenging for companies, and the weakness is likelyto extend into 2021 with rents forecast to fall further by as much as 16% andavailability 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. newsupply from nine projects planned in 2022 is expected to continue to weigh onrentals. Should the COVID-19 vaccine become available by mid-2021, that shouldsupport some recovery in demand."


Mr. Keith Hemshall, Cushman & Wakefield's Executive Director &Head of Office Services, Hong Kong, commented, "Office rents will continue theirdownward trajectory as demand remains weak and availability rises. Large occupiers with leases expiringin 2022/23 will seek to leverage against over four million square feet of new GradeA supply completing in 2022. Decentralization will accelerate as occupiers seek to cut costs andaccordingly Landlords in core districts will come under increasing competitionto retain existing tenants and backfill vacant space, resulting in increasinglyfavorable packages being offered. Meanwhile, small occupiers will continue to consider serviced offices asan option to maintain flexibility and avoid upfront capex. The service officesector continues to evolve as Landlords are now entering the market in directcompetition with established players."

The Retail Market:

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


Retail sales across most sectorsremained weak through October, as sales remained reliant solely on localconsumers in the absence of tourist arrivals during the pandemic. Retail sales of daily necessities remained resilient due tosocial distancing measures, with supermarket sales up 10.3% y-o-y. Vacancyrates across submarkets remained elevated while dipping slightly in CausewayBay, but it may begin to fall in coming months as some landlords turn toshort-term leases to fill spaces.


Mr Kevin Lam, Cushman & Wakefield's Executive Director, Headof Retail Services, Hong Kong, commented,"The retail markethad a tough year in 2020 as one of the sectors hardest hit by COVID-19. We dobelieve rentals will stabilize in 2H 2021 when tourists are likely to return asa result of effective vaccination. Meanwhile, withflexible leasing package for small tenants with innovative centralizedmanagement, we see potential for a growing trend in food halls to support theF&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, CapitalMarkets in Hong Kong, Mr. Keith Hemshall, Cushman & Wakefield's ExecutiveDirector & Head of Office Services, Hong Kong, Mr Alva To, Cushman &Wakefield's Vice President, Greater China & Head of Consulting, GreaterChina (Centre), Mr. John Siu, Cushman & Wakefield's Managing Director, HongKong


About Cushman & Wakefield

Cushman& Wakefield (NYSE: CWK) is a leading global real estate services firm thatdelivers exceptional value for real estate occupiers and owners. Cushman &Wakefield is among the largest real estate services firms with approximately53,000 employees in 400 offices and 60 countries. Across Greater China, 22 officesare servicing the local market. The company won four of the top awards in theEuromoney Survey 2017, 2018 and 2020 in the categories of Overall, Agency Letting/Sales,Valuation and Research in China. In 2019, the firm had revenue of $ 8.8 billionacross core services of property, facilities and project management, leasing,capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.hk or follow us on LinkedIn (