CONTACT US
Share: Share on Facebook Share on Twitter Share on LinkedIn I recommend visiting cushmanwakefield.com to read:%0A%0A {0} %0A%0A {1}

Hong Kong CRE Investment Activity Back on the Rise, Half-Year Transaction Volume up by 97% y-o-y

15/07/2021

Industrial buildings and development sites are sought after, hotels show potential of long-term appreciation

  • Commercial real estate investment market has recorded 89 deals in 1H21, and a total consideration of HK$43.1 billion, an increase of 97% y-o-y.
  • Full year deal count is expected to reach 200 cases, the most active year since 2018.
  • Local investors have dominated the market due to travel restrictions, but institutional investors start to eye on industrial buildings and development sites.
  • Industrial buildings and development sites are expected to be sought after, while hotels show huge potentials for long term appreciation.

Hong Kong, 15 July 2021 - Global real estate services firm, Cushman & Wakefield, announced the Hong Kong investment market 2021 Q2 review and forecast today. As the local pandemic situation calms and the economy recovers, local and institutional investors with abundant capital have turned active and looked for investment opportunities in the market, resulting in an upsurge in commercial real estate (CRE) transaction volume in 1H21. Half-year transaction volume has surpassed that of the annual number in 2020, with the industrial sector newly under the spotlight. The hotel sector is also expected to show potential for capital value growth in the long run.

CRE investment deals and consideration
CRE investment sentiment has gradually recovered since the end of 2020. Driven by local investors and a few institutional investors, this trend has continued into the first half of 2021. 89 transactions (with deal size over HK$100 million) were recorded in this period, making a total consideration of HK$43.1 billion, an y-o-y increase of 97%, marking the most active half year since 2H18. The average deal size was HK$485 million (Figure 1).

Mr. Keith Chan, Cushman and Wakefield's Director, Head of Research, Hong Kong, shared, "We expect the number of transactions for this year will hit 200 cases. Yet, investors remain cautious due to the uncertain economic outlook. Deals will mostly be in small size in the near term. The total consideration for this year will likely reach half of the peak in 2017 or 2018."

Figure 1: CRE investment deals and considerations in the last decade
GC Chart 1

CRE investment by sector
Amongst the transactions, the office sector was most active in 1H21, accounting for 40% of the total consideration, mainly driven by a single transaction. On the other hand, the retail sector recorded the highest number of deal count as local investors were in favour of smaller assets but greater chance for long-term growth. Yet, with office and retail rents still declining in the near term, capital looked into industrial and development sites with value-add potential in the longer term. In particular, industrial properties emerge as the most investible asset class in 1H21, accounting for 30% of total consideration, a significant increment compared to the average of 14% in the last decade (Figure 2).

The surge in industrial property transaction was mainly due to its relatively low unit price and a set of favourable policies by the government. For instance, “the new industrial building revitalization scheme” announced in 2018 allows revitalized buildings fulfilling certain requirements to achieve additional GFA; The launch of the pilot scheme of “Land Premium Standard Rates” in March 2021 also enhanced the flexibility and clarity for decision making. In addition, the potential for traditional industrial buildings to be converted into other modern usages such as mini-storage, cold storage, logistics warehouse and data centers will match with new business demand and create value in the post-pandemic era.

Figure 2: CRE tranactions by sector in 1H21
GC Chart
    
Although hotel transactions have been muted, it possess great value-add potential for long-term investors. Mr. Tom Ko, Cushman and Wakefield’s Executive Director, Head of Capital Markets, Hong Kong, said, "The hospitality industry has been facing many challenges during the pandemic and hence associated investment activity has frozened at present. Yet, the hotel industry has been proactively reacting to the situation by launching monthly rental plans, in an attempt to benefit from the red-hot residential market.
Notably, investors have been looking into the long-term investment value of hotel properties, especially high-quality assets at discount. As such, we anticipate that hotel transactions will pick up in the second half of the year.”

Investor breakdown
With travels between Hong Kong and the mainland, and most part of the world still being restricted, local capital has effectively dominated the market, accounting for over 70% of the total transactions in 1H21. That said, institutional investors, particularly those have local presence, also actively looking for investment opportunities. Notable transactions include an en-bloc industrial building on Hung To Road in Kwun Tong, and a portion of Wharf’s Cable TV Tower in Tsuen Wan. Mainland investors, however, were relatively quiet, accounting for only 13% of the transaction volume (Figure 3).

Figure 3: CRE transactions by investor type
GC Chart


New market spotlight
In addition to the abovementioned projects, Kwu Tung North will become the upcoming spotlight in the property market. Thanks to the improved transportation and ancillary facilities, such as the new Kwu Tung Station to be constructed in 2023 and completed in 2027, this area has been increasingly appealing to major developers. With the recent confirmation of more upcoming development projects in Kwu Tong, as well as the nearby developments in the Lok Ma Chau Loop and the Hong Kong-Shenzhen Innovation and Technology Park (HSITP), developers are expected to pay increasing attention to the area in the next one or two years (Figure 4).

Figure 4: Development map of Kwu Tung North in the New Territories
GC Chart

Mr. Tom Ko concluded, "We believe the commericial real estate investment market will continue to be active in 2H21, and the investment sentiment remains cautiously optimistic. With some stocks already under their belt, local investors will take a wait-and-see approach before they invest further when the market upward trend is fully confirmed. Travel restrictions have hindered local deals by mainland and institutional investors for some time. Once restrictions are relaxed, they will become more aggressive. We expect investors will be keen on industrial assets. Long term focus is on hotel assets which give better prospects.”

Belinda Chan / Penn Leung
Creative Consulting Group
+852 9379 3045 / +852 6077 7342
belinda.chan@creativegp.com /
penn.leung@creativegp.com

About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries. Across Greater China, 22 offices are servicing the local market. The company won four of the top awards in the Euromoney 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 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake External Link on Twitter.

 

With your permission we and our partners would like to use cookies in order to access and record information and process personal data, such as unique identifiers and standard information sent by a device to ensure our website performs as expected, to develop and improve our products, and for advertising and insight purposes.

Alternatively click on More Options and select your preferences before providing or refusing consent. Some processing of your personal data may not require your consent, but you have a right to object to such processing.

You can change your preferences at any time by returning to this site or clicking on Privacy & Cookies.
MORE OPTIONS
AGREE AND CLOSE
These cookies ensure that our website performs as expected,for example website traffic load is balanced across our servers to prevent our website from crashing during particularly high usage.
These cookies allow our website to remember choices you make (such as your user name, language or the region you are in) and provide enhanced features. These cookies do not gather any information about you that could be used for advertising or remember where you have been on the internet.
These cookies allow us to work with our marketing partners to understand which ads or links you have clicked on before arriving on our website or to help us make our advertising more relevant to you.
Agree All
Reject All
SAVE SETTINGS