A good illustration of how the Hong Kong real estate market is changing is the status of the city’s office sector. Hong Kong is perhaps best known for its gleaming office skyscrapers, yet in the first quarter of 2022, the office sector saw the lowest transaction volumes out of the four main real estate segments, MSCI Real Assets data shows.
Local and overseas buyers have been turning to data centers, industrial and logistics and hospitality assets, the latter often for residential conversion.
The city’s economy is still battered by covid and the rigorous local response, modeled on Mainland China’s “zero-covid” policy. Inbound travel remained restricted by quarantine requirements as of July 2022 and visitor numbers have plummeted. Despite the restrictions, a “fifth wave” of infections in early 2022 was the deadliest yet and resulted in thousands of deaths. GDP, which bounced back strongly in 2021, is on track to fall again in 2022 and has been stagnant since 2018.
Overall real estate transactions have been rising since 2020, however, and the city is still the preferred Asia-Pacific headquarters location for private real estate firms, with eight in the PERE rankings based in the city, surpassing Mainland China or Singapore, with seven and six, respectively. Furthermore, three of the top five managers in terms of capital raising for Asia-Pacific strategies in 2021 call Hong Kong home.
Firms in the PERE APAC Guide based in Hong Kong, edging out Mainland China for the top spot
Hong Kong has also seen a flurry of real estate investment manager M&A, with ARCH Capital Management and BPEA Asia both being acquired by larger entities. Meanwhile, PAG has filed for a rare IPO.
As in most other markets, private real estate investors have been targeting industrial and logistics properties and data centers. One of the biggest deals of 2021 came when DigitalBridge, formerly Colony Capital, bought Hong Kong telecoms firm PCCW’s data centers arm, including seven facilities in the city, for $750 million. Private real estate investors such as Nuveen, ESR and Angelo Gordon are also targeting the sector.
While Hong Kong home prices have faltered slightly during the pandemic, it remains one of the most expensive residential markets in the world and this has encouraged investors to investigate opportunities to convert moribund hospitality properties to residential use, often co-living facilities for younger residents. Some investors are also hoping to acquire older apartment buildings in order to upgrade and convert them to co-living properties.
The retail sector has also shown signs of life. Services firm Savills reported significantly higher transaction volumes in 2021, however the city’s shops need tourists, particularly from the Chinese Mainland, to return if it is to thrive again.