Which real estate sectors will benefit most from HK’s recovery?

CBRE reported office and retail sectors are likely to be the biggest gainers.

The recovery of the real estate sector is underway as Hong Kong’s economy rebounds amidst the pandemic, which will likely be more evident in the city’s office and real estate sector.

“The bottoming-out rents and anticipated economic recovery will support investment demand and, hence, capital value growth in the second half of 2021,” CBRE Hong Kong reported in its 2021 Mid-Year Market Outlook.

According to Marcos Chan, executive director and head of research of CBRE Hong Kong, the recovery in real estate will likely be “most pronounced” in the office and retail sectors.

This will be particularly driven by leasing and consumption demand from the mainland and Chinese companies. 

The gross leasing volume of Grade A offices rose by 41.9% quarter-on-quarter to 1.2 million square feet in the second quarter of the year.

This brings the half-yearly total to 2.1 million square feet, which is 107.1% higher than the same period in 2020.

CBRE attributed this to the stronger leasing activity among banking and finance firms, which accounted for 21.0% of this quarter’s leasing volume. This is compared to 16.8% and 8.8% in the first quarter of 2021 and the fourth quarter of 2020, respectively.

“Should quarantine requirements be loosened, office leasing demand from mainland Chinese companies is expected to pick up, with properties located in and around the Central Business District set to benefit in particular,” Ada Fung, executive director and head of Advisory & Transaction Services – Office Services of CBRE Hong Kong, said.

The retail sector is also expected to benefit from vaccination programmes both locally and globally. On top of this, it could also be supported by the e-consumption voucher rolled out by the government.

“Brighter business prospects and lower rents will encourage some retailers to commit to new leases, leading to stronger leasing volume and higher occupancy in the second half of 2021,” Lawrence Wan, senior director of Advisory and Transaction Services – Retail of CBRE Hong Kong, said.

Total retail sales continued to rise from a low base with April and May combined to climb 11.2% year-on-year (YoY).

This brought the year-to-date growth for the first five months of 2021 to 8.9% YoY.