Total property investment volume down 46% in Q1 2022: Colliers

Industrial and retail sectors saw the highest investment volume.

Hong Kong posted a total investment volume of $11.2b in the first quarter of 2022, which is a 46% drop from the previous quarter, investment management firm, Colliers, said in its quarterly report.

It reported that half of the deals from investment volume were negotiated in 2021 before momentum started to slow and stricter social distancing rules were implemented in late January.

This number, however, constitutes a 19% year-on-year increase on the back of the low base effect in 2021.

For this quarter, Colliers found industrial and retail sectors reported the highest volume whilst hotel assets had an increased interest after a quiet 2021 from investors looking for discounted pricing and value-add potential by converting into residential-for-let projects.

Colliers then expected that the investment market in Hong Kong will maintain a slow pace in the second quarter of 2022 but market momentum will likely improve in the second half of this year due to relaxed social distancing measures from 21 April and onwards. 

For his part, Thomas Chak, executive director of capital market & investment services in Colliers Hong Kong, said the flow of cross-border capital from Mainland investors, which only accounted for 2% of investment market volume in the first quarter, could be limited following the uncertainty on the Mainland-Hong Kong border reopening.

“Against these backdrops, unless there are big-ticket deals to boost the volume in the upcoming months, we forecast the whole-year transaction volume will likely edge down by 5% to $70b in 2022,” added Chak.

Meanwhile, the Colliers report also recorded a weakened office space demand in the market in the first quarter of 2022, which stemmed from inspection activities brought about by the more stringent social distancing rules during the fifth wave of COVID-19.

It recorded a “new record high” overall vacancy rate, with 10.9% in the first quarter of 2022, compared to the previous quarter whilst overall rentals went down to 1.3% on a quarterly basis.

Supported by leases negotiated since the end of 2021 and closed in early first quarter of 2022, the overall net take-up posted a rebound of 157,000 square feet this quarter. 

Based on the transactions that Colliers tracks, only 32% of newly leased area is in Hong Kong. 

Also, vacancy in the Central Business District went up by 0.5 ppt to 9.2% in the first quarter of 2022 because some spaces were left vacant after expiries while Kowloon East remained a popular submarket for cost-saving tenants looking for downsizing or relocation. The vacancy of that district remained flat at 14.1% in the quarter.

As for overall Grade A office rents, it increased its correction with a 1.3% quarter-on-quarter drop. 

Office rents in Hong Kong Island, including Central/Admiralty and Island East, recorded a noticeable decline with -1.2% and -2.1%, respectively.