At a press conference held in Knight Frank Hong Kong office this afternoon, Paul Hart, Executive Director, Greater China, Head of Commercial, Thomas Lam, Executive Director, Head of Valuation & Advisory, Patrick Mak, Executive Director, Head of Kowloon Office Services & Head of Tenant Representation, Greater China, Wendy Lau, Senior Director, Hong Kong Office Services, Martin Wong, Associate Director, Research & Consultancy, Greater China, presented their forecasts for Hong Kong and Chinese Mainland’s property markets for 2020.
Hong Kong and Kowloon Office Market:
Paul Hart, Executive Director, Greater China, Head of Commercial said, leasing activity has increased recently in general, with tenants using various strategies to save costs. Tenants from some sectors are more active in downsizing while some others try to reduce costs and at the same time improve their workplace quality. Overall, tenants relocating to new premises have reduced about 30% of their leasable area. The sectors of Banking and Finance, and Professional Services are the top sectors with the most significant reduction in their occupying scale. On the other hand, Technology, Manufacturing and Electronics which focus on masks and related covid-19 measures have been able to expand. However, this is a short term measure related to the pandemic.
Patrick Mak, Executive Director, Head of Kowloon Office Services & Head of Tenant Representation, Greater China said, due to the insufficient supply of new Kowloon office buildings in 2020 and 2021, and the current economic atmosphere is gradually stabilising, the office market may come out of the trough after 2020. However, the weak market environment will continue at least throughout the rest of the year, this will drive companies to become more cost conscious and hence a more obvious trend of relocating away from the more expensive core districts in Kowloon. This ongoing “decentralisation” trend has gone on for some years, however, it has recently become more popular in addition to traditional downsizing cost control measures. Furthermore, companies are looking for more flexibility such as looking for various lease term length or exit rights during the tenure. As a result, office rent in core Kowloon districts are under more pressure compared to Kowloon East. We expect office rent in core Kowloon districts will record a larger decline this year, while office rents in Kowloon East and Kowloon West will decline more moderately.
Wendy Lau, Senior Director, Hong Kong Office Services said, despite ongoing improvement on coronavirus situation, economic activity has gradually resumed, and market sentiment has improved, the current economy is still affected by some external factors and different industries have been hit differently. Tenants have therefore been very cautious in controlling operating costs. Some tenants are actively seeking cost-saving methods, including requesting landlords to reduce rent, cutting its rental size or sub-leasing, carrying out lease restructuring, with some even moving to areas with more affordable rents on Hong Kong Island and Kowloon. At the same time, due to the office rent correction in the core areas of Central, the attractiveness to tenants has greatly increased, and some tenants in other areas have expressed interests in moving to Central while the rents are low.
Hong Kong residential market:
Thomas Lam, Executive Director, Head of Valuation & Advisory, stated that many factors are affecting the direction of the property market. With the ongoing social movement, the China-US trade war, the recent coronavirus outbreak and national security law, and future China-US relations, as well as the Legislative Council and the upcoming US presidential election, etc., can all affect the property market. It is believed that once the pandemic subsides, the social movement will add uncertainties to property prices. Nevertheless, I believe that the residential property market will not plummet, but there will be no V-shaped or U-shaped rebound. Against the backdrop of various external and local factors, it is estimated that the residential home prices in Hong Kong are still in the adjustment period this year, with a reduction of about 5-10%. It is difficult to meet the housing supply, construction volume and completion volume target this year. Developers are expected to actively sell their properties in the coming months, focusing on the sale of existing stocks and new developments in Kowloon and New Territories. It is estimated that there will be about 58,000-60,000 first- and second-hand transactions this year.
As for government land sales, it is estimated that the pace of government land sales will continue to slow down in the next few months. Some unsuccessful commercial land plots tendering will affect land sales revenue. Residential land will be more popular to developers while large commercial land plots have not received the same demand as before. The overall land price will drop by approximately 10-15% this year. It is estimated that the revenue from land sales in the 2020/2021 fiscal year will be approximately HK$90 to HK$110 billion, a record low since 2015/2016.
Chinese Mainland residential market:Martin Wong, Associate Director, Research & Consultancy, Greater China, pointed out that with the improving COVID-19 situation in Chinese Mainland, residential sales in major cities have rebounded, and first-hand sales in some cities have returned to the levels before the outbreak. Benefiting from the rigid domestic demand and the support of national policies, especially to encourage Hong Kong people to buy properties in the Greater Bay Area, it is expected that the price growth of residential homes in the Greater Bay Area will outperform that of other Chinese Mainland cities this year. Among GBA cities, residential properties in Shenzhen will continue to draw the most attention to Hong Kong people due to its close proximity. Other cities include Dongguan, Zhongshan and Zhuhai are also expected to draw more attention from investors due to their high price growth potential.