Hong Kong Real Estate Report

Published 13 November 2014

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Hong Kong Real Estate Report

BMI View: Hong Kong, as a global financial hub and a gateway to mainland China, has one of the most dynamic commercial real estate markets in the world. Rental rates, particularly for retail, are among the highest in the world, and the market has traditionally been characterised by strong demand and, due to its small size, limited supply. With the market vulnerable to the impact of an economic slowdown in China, the medium-term outlook is one of stability in rental rates.

Hong Kong is a Special Administrative Region (SAR) of the People's Republic of China. It is governed under the principle of 'one country, two systems', which means that it retains many institutions, for example its common law legal system, that date back to its time as a British colony. All this gives a level of predictability to the business environment, although tensions with Beijing over the level of democracy allowed in Hong Kong do arise from time to time, as witnessed in the protests in the latter part of 2014.

Hong Kong's economy is closely linked to that of China, leaving the SAR particularly exposed to any potential slowdown in the mainland. The main risk to our outlook for the commercial real estate sector is thus a sharper-than-expected slowdown in China. However, other risks are the impact of rate rises in the US, any renewed crisis in the eurozone and, closer to home, any downturn in consumer confidence resulting from a fall in residential real estate prices.

The office market is currently characterised by moderate supply and demand. However, as a global financial hub, Hong Kong's office real estate market is highly developed, and we do expect demand to continue to meet the space available, with particular interest from international and mainland Chinese firms. Demand for premium space in the central business district will be the key driver of the office market, although we are also noting a trend of increasing development in more suburban areas.

Hong Kong's retail market is one...

Table of Contents

BMI Industry View
7
SWOT
9
Real Estate
9
Political
11
Economic
12
Industry Forecast
13
Office
14
Table: Forecast Office Rental Costs, 2015-2016 (USD per square metre per month)
14
Table: Forecast Office Net Yields, 2011-2018
14
Retail
14
Table: Forecast Retail Rental Costs, 2015-2016 (USD per sq m per month)
15
Table: Forecast Retail Net Yields, 2011-2018
15
Industrial
16
Table: Forecast Industrial Rental Rates, 2015-2016 (USD per sq m per month)
16
Table: Forecast Industrial Net Yields, 2011-2018
16
Construction And Infrastructure Forecast Scenario
17
Table: Construction And Infrastructure Industry Data (Hong Kong 2012-2017)
17
Table: Construction And Infrastructure Industry Data (Hong Kong 2018-2023)
18
Macroeconomic Forecasts
25
Economic Analysis
25
Distinct Groups Forming Broader Movement
26
Beijing Sees Wider Ramifications
27
Political Risk On The Rise
27
PLA Involvement Unlikely, But Some Economic Impact To Be Felt
28
Table: Economic Activity (Hong Kong 2009-2018)
29
Industry Risk Reward Index
30
Asia - Risk/Reward Index
30
Table: Asia - Real Estate Risk/Reward Index
30
Hong Kong - Risk/Reward Index
31
Rewards
31
Risks
31
Market Overview
33
Office
35
Table: Historical Rental Costs, 2013-2014 (USD per square metre per month)
37
Table: Historical Net Yields, 2013-2014 (%)
37
Table: Terms Of Rental Contract/Leases, H114
37
Retail
38
Table: Historical Rental Rates, 2013-2013 (USD per square metre per month)
40
Table: Historical Net Yields, 2013-2014 (%)
40
Table: Terms Of Rental Contract/Leases, H114
40
Industrial
41
Table: Historical Rental Rates, 2013-2014 (USD per square metre per month)
43
Table: Historical Net Yields, 2013-2014 (%)
43
Table: Terms Of Rental Contract/Leases, H114
43
Competitive Landscape
45
REITs
45
Office
46
Retail
47
Industrial
47
Company Profile
48
Chinese Estates Group
48
Henderson Land Development
51
Sino Group
53
Sun Hung Kai Properties
55
Demographic Forecast
58
Table: Population Headline Indicators (Hong Kong 1990-2025)
60
Table: Key Population Ratios (Hong Kong 1990-2025)
60
Table: Urban/Rural Population And Life Expectancy (Hong Kong 1990-2025)
61
Table: Population By Age Group (Hong Kong 1990-2025)
61
Table: Population By Age Group % (Hong Kong 1990-2025)
62
Methodology
63
Industry Forecast Methodology
63
Sources
64
Risk/Reward Index Methodology
65
Table: Real Estate Risk/Reward Index Indicators
66
Table: Weighting Of Indicators
67

The Hong Kong Real Estate Report features Business Monitor International (BMI)'s market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.

BMI's Hong Kong Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in Hong Kong.

Key Benefits

  • Benchmark BMI's independent real estate industry forecasts for Hong Kong to test other views - a key input for successful budgeting and strategic business planning in the Hong Kong real estate market.
  • Target business opportunities and risks in Hong Kong through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
  • Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).

Coverage

BMI Industry View

Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.

Industry SWOT Analysis

Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.

Industry Forecasts Outlook

Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.

Indicators Include:

  • Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
  • Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
  • economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).

BMI’s Real Estate Risk Reward Index

BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.

Market Overview

Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors

Market Analysis

Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.

Company Profiles*

Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.

*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.

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Testimonials

'An essential, multi-faceted research tool. BMI’s thorough understanding of the major market players enables an informed – and informative – review of the sector’s actual performance, together with useful insights into current industry issues, which are topped-off with detailed and invaluable forecasts of industry and macroeconomic trends.’

Senior Research Analyst, ABC International Bank plc