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Hong Kong Investment Sentiment Cautious in 1H 2023 Amid High Rates, With Local Investors and Owner-Occupiers Driving Transactions

Rosanna Tang • 19/06/2023

Supported by Talent Policies, Emerging Sectors Such as Rental Apartments and Student Housing Set to Attract Investor Attention

Cushman & Wakefield today released its Hong Kong Investment Market Review and Outlook 1H 2023 report. Despite the border reopening, Hong Kong’s large-sized (exceeding HK$100 million) non-residential investment market had yet to rebound in the 1H period, constrained by the prevailing high-rate environment. The market was chiefly driven by local investors and owner-occupants seeking bottom-fishing investment opportunities. 
The 1H 2023 investment market report closely follows the publication earlier this month of Cushman & Wakefield’s Hong Kong Talent Housing: A New Niche Sector report. The new research study highlights that expat professional and non-local student numbers in Hong Kong are set to rise under the government’s new policies to attract talent. These inflows will spur renewed demand in rental apartment categories such as co-living, multifamily, and student housing. In turn, the firm expects to see growing investor interest in these niche housing sectors.
Hong Kong Investment Market Review and Outlook 1H 2023 report key takeaways:
  • As of June 15, large-sized (exceeding HK$100 million) non-residential transaction activity for the 1H 2023 period recorded 31 deals totaling HK$18.1 billion, down 45% y-o-y from 1H 2022. 
  • Local investors, capital-rich buyers and owner-occupiers were the main drivers of the investment market; 2H 2023 transaction activity is expected to rise, bringing estimated full-year consideration to HK$50 billion.
  • Hotel asset and private land site transactions were active in 1H 2023; emerging sectors such as rental apartments and student housing are likely to gain greater traction from investors ahead.
Overview of Large-Sized Non-Residential Investment Market
Despite the gradual return to normalcy after the border reopening, investors in Hong Kong remain cautious in the high-rate environment. Rising financing costs, coupled with limited options for high-yield properties in the market, have resulted in an impasse between buyers and sellers. Thirty-one large-sized (exceeding HK$100 million) non-residential deals with a total transaction volume of HK$18.1 billion were recorded in 1H 2023, with the average deal size standing at HK$585 million.
Cushman & Wakefield’s Executive Director and Head of Capital Markets, Hong Kong, Tom Ko, said, “Since the border reopened in February, the market has been anticipating an improvement in overall investment sentiment. However, the impact of interest rate hikes has outweighed the boost from the border reopening. Currently, the banking mortgage rate for commercial properties can be as high as 6%, deterring investors from entering the market. Nevertheless, property prices have corrected notably since the pandemic, creating an opportune time for local investors and end-users to take advantage of the current market and bottom-fish. As a result, these buyers were the most active in 1H 2023, with local capital accounting for almost half of the total transactions. We are now also observing greater activity from mainland investors and state-owned enterprises when compared with the prior three years of the pandemic.”
Tom Ko continued, “The 2H 2023 outlook largely depends on interest rate movements. The market expects an increase of 0.25 to 0.5 percentage points in 2H, with the high rate environment expected to last for some time. We believe that the market will continue to be supported by end-users and capital-rich investors with limited assets looking to bottom-fish before prices fully rebound. We expect total volume of large-size non-residential transactions to reach around HK$50 billion for the full-year 2023.”
Investment Transactions by Sector
Among all sectors, private land sites accounted for over 30% of transaction volume in 1H 2023, predominantly due to a headline transaction of a development site in Mid-Levels. Office and retail assets each accounted for 21% of the total consideration, including strata-title offices, high-street shops, and retail podiums, supported by demand from end-users and retail recovery trends. The industrial sector has been relatively resilient with active transactions over the last two years, and investors are still keen to explore opportunities in this sector. However, the more aggressive asking prices from landlords have led to a slowdown in industrial transactions this year. In the hospitality sector, the number of hotel deals has risen amid recovery in tourist arrivals and accommodation needs since the border reopening. 
Tom Ko commented, “Hotel transactions have seen an increase in recent quarters, with several notable headline acquisitions in the market. Some investors are confident in the hotel sector’s recovery, particularly with the return of inbound travel after the border reopening. Additionally, some buyers, such as operators and real estate funds, have been eyeing the growing housing needs of incoming talent and actively purchasing hotel assets for conversion into co-living, multifamily, and student housing projects.”
Hong Kong Talent Housing Market
Cushman & Wakefield has released its latest report titled Hong Kong Talent Housing: A New Niche Sector, which highlights that, despite a decline in talent inflows during the COVID period, Hong Kong has witnessed a recovery of incoming talent since 2020. Moreover, in the latest Policy Address, Chief Executive John Lee unveiled plans to “proactively trawl the world for talent,” which is expected to result in sustained growth in incoming talent and student numbers into Hong Kong in the coming years, and to provide opportunities for rental apartment categories such as co-living, multifamily and student housing to grow. The rapid emergence of this niche sector is attracting investors’ interest.
Cushman & Wakefield’s Executive Director and Head of Research, Hong Kong, Rosanna Tang, stated, “Over the last decade, the annual average number of incoming expat professionals and non-local university students were 50,500 and 17,000, respectively. The government has implemented a stamp duty refund policy for incoming talent, but Hong Kong property prices are still among the highest in the world, making it challenging for young expats to save the lump sum required for down payments on residential purchases. As a result, more young professionals tend to opt for rental housing options that offer flexible tenancy terms and a range of services and facilities with more affordable costs.”
The report also reveals that the total university student population in Hong Kong has increased by 9% in the last decade, from 93,400 students in 2012/13 to 101,500 in 2021/22. The number of non-local students has seen significant growth of almost 50%, from 13,700 students in 2012/13 to 20,400 in 2021/22. This has pushed up the proportion of non-local students in tertiary education institutions from 15% to 20% over the same period. However, the current student-to-bed ratio at universities shows that the existing student hostel capacity is insufficient to meet accommodation needs. In some tertiary institutions, on average, six students compete for one available bed on campuses. Given the limited supply of on-campus student hostels, some non-local and even local students need to consider off-campus accommodation options, which is boosting the growth of the student and rental housing sector.  
Rosanna Tang further commented, “Rental housing categories such as student housing, co-living and multifamily assets have emerged as a major trend in the global investment market in recent years. This sector is particularly popular in Europe, the United States, Australia, and Japan, and has recently gained momentum in Hong Kong. Student housing, with relatively low operating and maintenance costs, can provide high and stable occupancy and rental income, and some of these properties have also adopted master leases. With the increasing number of non-local university students and incoming expats, these assets are attractive to operators and investors seeking stable returns. Over the past two years there have been several rental-housing-related investment transactions. Most of these deals have involved partnerships or joint ventures between operators and real estate funds or institutional investors seeking to purchase hotel and residential assets for conversion and repositioning. We believe that, supported by the Hong Kong government’s efforts to actively attract incoming talent, this new niche sector will continue to gain investors’ interest in the city.” 
Please click here to download the full report Hong Kong Talent Housing: A New Niche Sector
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in approximately 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2022, the firm reported global revenue of US$10.1 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), Environmental, Social and Governance (ESG) and more. For additional information, visit or follow @CushWake on Twitter.

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