Hong Kong real estate investments drop 15% to USD3.7b in H1

Investors are still cautious amidst the US Federal interest rate hike.

In the second quarter of 2022, commercial real estate investment transactions in Hong Kong increased by 52% from Q1’s low base. Despite this, the total investment volume for H1 2022 is still down 15% YoY to HKD 28.9 billion (USD3.7b). 

Considering the strong pent-up demand for the housing sector, Colliers believes residential development sites and co-living assets offer opportunities to local developers and funds while neighbourhood retail will continue to gain traction in H2 2022 given its resilient performance. Institutional funds and real estate firms, which accounted for 87% of the investment volume in Q2, should remain as the key market driver for the rest of 2022.

“Supported by the strong demand and rental performance, industrial assets, including data centres and cold storage facilities, will remain the most preferred asset type and continue to be sought-after by institutional investors. We expect the investment transaction volume of H2 will exceed that of H1,” said Thomas Chak, Executive Director, Capital Markets & Investment Services at Colliers Hong Kong.

Here’s more from Colliers:

​​In Q2 2022, investment transactions picked up from Q1’s low base, along with the more relaxed social-distancing measures since 21 April. Commercial property investment volumes increased by 52% QOQ to HKD 17.4 billion (USD 2.2 billion) in Q2, yet this was still a drop of 29% YOY. This brings the total investment volume in H1 2022 to HKD 28.9 billion (USD 3.7 billion), −15% YOY. The market recovery remained slow amidst the US Federal interest rate hike, as some investors turned more cautious and adopted a wait-and-see approach, which could also lengthen decision-making processes.

Backed by robust cold storage and data centre demand, the industrial sector remained a popular choice among investors as the sector recorded HKD 9.2 billion (USD 1.2 billion) in Q2 2022, accounting for over half of the quarter’s transaction volume. Significant deals in the quarter included China Resources Logistics’ acquisition of two warehouses in Chai Wan and Sha Tin for HKD 4.62 billion (USD 592 million).

The portion of PRC buyers jumped to 36% in Q2, becoming the largest source of capital by origin, mainly driven by China Resources Group, a state-owned enterprise, who purchased four assets during the quarter totaling HKD 6.2 billion (USD 800 million). Overseas buyers were also active in Q2, accounting for 34% or HKD 5.9 billion (USD 761 million), including active real estate funds such as Nuveen, Heitman, and Angelo Gordon.

Given that potential interest rate hikes may add to landlords’ financial burden, Colliers anticipates more investment stocks being put on the market for sale, hence also stimulating more transactions to take place in H2 2022.  Subject to no further lockdowns in the city, the firm remains cautiously optimistic and maintains our forecast to see transaction volumes of -5% YoY in 2022.