Cautious Residential and Investment Markets in 2022
Interest Rates Are Expected to Peak in 2023
Further Border Reopening to Bring About Market Stability
- Residential market transactions slowed noticeably in 2022, with full-year transactions forecast to record a decade low, accompanied with a price decline further accelerating in Q4
- The large transaction (non-residential, exceeding HK$100 million) real estate investment consideration in 2022 as at December 9 had dropped by almost 45% y-o-y, with industrial and development sites remaining most attractive to investors
- Office market net absorption returned to positive territory in 2022 with 176,000 sq ft NFA as at mid-November, the first positive absorption year since 2019, although high availability has kept rents under pressure
- High street retail rents have dropped, but inbound tourist numbers have gradually risen in the last few months, with some retailers strategizing ahead to prepare for further border reopening
The residential market slowed noticeably in 2022, with average monthly transactions of less than 4,000 units (Jan to Nov 2022). Whilst buying sentiment in 1H 2022 was mainly affected by the fifth wave of the pandemic, the market witnessed other emerging impacts in 2H 2022, including rising interest rates and stock market volatility. Government data shows that overall property prices retreated by 10.5% in the first 10 months of 2022, and we expect an annual price drop of 12%–13% by the end of this year.
Non-Residential Investment Market
Buffeted by interest rate hikes, investors generally adopted a cautious and wait-and-see stance in 2H 2022. The large-sized non-residential transaction sector (over HK$100 million) stayed relatively quiet with only 93 deals recorded in 2022 as at December 9, sending total investment volume down by more than 40% y-o-y. Defensive assets including industrial and development sites continued to gain traction with investors.
Grade A Office Market
Overall business sentiment stayed cautious, with some tenants downsizing to save costs amid the global economic downturn. The city’s Grade A office market recorded negative net absorption of 75,400 sq ft NFA in Q4. New leasing transactions continued to be dominated by the banking and finance sector. The 2022 net absorption figure as at November 2022 was 176,200 sq ft NFA, the first positive absorption year since 2019.
The first 10 months’ total retail sales fell by 0.7% y-o-y, although daily necessity categories such as medicines & cosmetics and supermarkets performed relatively well, up 2.8% y-o-y and 1.5% y-o-y, respectively. The retail market was predominantly supported by local consumption through 2022 amid the fluctuating pandemic situation, leading to drops in high street rents at traditional tourist areas. Inbound visitor numbers have seen a gradual recovery over the last few month. Some retailers who previously exited from core areas have now returned and renewed their retail strategy and hiring process to prepare for the border reopening.