Chinese demand to drive Hong Kong's real estate recovery

The investment and office markets will benefit as China shows early signs of recovery.

Colliers International says the growing interest from mainland Chinese firms in Hong Kong’s real estate will be key as the city becomes a focal point to establish a footprint.

Rosanna Tang, Head of Research, Hong Kong and Southern China, explained: “Throughout H1 2020, occupiers and investors have remained cautious, reacting to the market as it unfolds to best position their business to remain resilient. However, as China’s economy shows early signs of recovery as its GDP increased by 3.2% YOY in Q2 2020, we believe mainland firms and Chinese capital will be more active and seek opportunities which will benefit the Hong Kong leasing and investment markets. This is further enforced by the introduction of the cross-border financial initiatives in stock and wealth management, Hong Kong’s large capital pool for fund-raising, and the longer-term vision of the Greater Bay Area development.”

Growing market activities from mainland investors
Recent market uncertainties and rising economic risks have weighed on the sentiment of Hong Kong’s investment market, with the transaction volume slowing by almost 70% YOY in H1 2020. However, there has been a rise in interest from Chinese capital to find opportunities and increase their operational footprint in Hong Kong.

Antonio Wu, Deputy Managing Director of Capital Markets and Investment Services, outlined: “In regards to real estate investment, we recommend asset owners in Hong Kong looking to dispose should pay attention to mainland Chinese capital as we witness more enquiries from mainland investors looking for end-user purchase or private residential site development opportunities. The demand in the market from Chinese organisations is evident, especially when you consider six of the last 13 tendered sites in the Government land sale programme since July 2019 were awarded to mainland Chinese developers; accounting for almost 60% of the total considerations. This demonstrates the strong confidence of mainland developers on the longer-term prospects of the city.”

New financial initiatives to stimulate leasing demand from mainland firms
Leasing momentum was subdued in 2019 and remained the same throughout the first half of 2020. However, there was an increase in activity from Chinese occupiers with it being estimated that mainland firms accounted for 11% of the Grade A office leasing deals in H1 2020, in Hong Kong.

Fiona Ngan, Head of Office Services, said: “We’re seeing a growing appetite from Chinese firms and with the new cross-border initiatives, including the Stock Connect, Bond Connect, the recently announced Wealth Management Connect, and a potential Insurance Connect to draw more mainland firms to set up or raise funds in Hong Kong, we should see the migration to Hong Kong rise and positively impact the short and long-term demand for office space.”

“Landlords in Central should look out for the return of mainland demand, as the CBD area remains a favorable location for Chinese firms, while the emergence of Chinese fintech, technology, media, and telecom (TMT) and insurance firms could also stimulate demand for decentralised locations to house non-core functions such as back office, or less pressing client-facing departments”, added Ngan.