Under the impact of the fifth wave of the Omicron-pandemic, investment activity in the property sector slowed across the board during Q1 2022. However, some of the significant deals in the quarter reflect investors' appetite for solid yield returns and point to a potentially bigger transaction volume in Q2, as revealed by renowned international real estate advisory firm Savills in its review of the investment market in Q1 2022 today.
A total of 13 major transactions (each with a value of HK$10 million) were closed by Savills in Q1 2022, involving properties of various sectors. The volume reflected the dampened investment sentiment due to the local COVID situation, concerns about geo-political events, recent stock market volatility and rising interest rates.
In the market at large, industrial properties led the share (50%) of the total consideration of en-bloc/significant ownership commercial transactions recorded in Q1*, followed by retail podium/shopping centres (30%) and hotels (17%).
Of the investor profile, PERE funds (56% of total consideration) and local capital (44%) dominated the transactions in Q1*. In fact, PERE funds have invested around HK$41.9 billion in Hong Kong market since 2020, and their share in industrial deals (significant ownership) have ballooned from 15% in 2020 to 61% in 2021, reflecting their interest in yield and stable rental income.
Peter Yuen, Managing Director, Head of Investment & Sales, Savills commented, "Despite a quiet Q1, investors' interest begins to focus on retail and hospitality recently, most notably with institutional investors and funds in their acquisition of en-bloc hotels and residential/site projects. On a positive note, the new round of Consumption Voucher Scheme together with the easing of social distancing measures are expected to boost patronage rate and give the much-needed support to retail rentals. Should the pandemic continue to ease, the anticipation of border opening will boost the prospects of hospitality properties. The improving investment prospects of both retail and hospitality properties have prompted investors to take advantage of the substantial discount in pricing. We expect more stock to be available in the market as sentiments begin to improve."
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*As of 19 April 2022 |
James Siu, Deputy Managing Director, Head of Kowloon, Industrial Development & Investment, Savills commented, "In recent years we witnessed the changes in investment preference in the industrial sector, from developers opting for sites to develop new-builds to funds and investors being keen on this niche segment and pushed up the prices of flatted factories and warehouses. After a robust 2021, where the transaction volume of industrial properties rose by almost two-fold compared with 2020, stocks have been going fast, and the pace of activity slowed in the first quarter of 2022 – with the transaction volume of industrial properties nose-diving by 33% in Q1 to reach 570 deals, including only two en-bloc transactions. Still, logistics premises have generally remained unaffected by the ongoing uncertainties as e-commerce continues to proliferate. Investors continue to look for opportunities to buy, focusing especially on properties of smaller unit rate with a yield of 3% minimum."
Cherrie Lai, Senior Director & Head of Residential Sales, Development & Investment, Prestige Home, Savills commented, "The luxury residential market in Q1 2022 started with some encouraging building and site transactions, including House 5 of 45 Tai Tam Road (HK$453.8 million) and a government residential tender site in Repulse Bay (accommodation value of HK$62,355). Again the market sentiment has been dampened under the impact of the pandemic, the Russia-Ukraine war and the onset of the rate hike cycle. However, with the easing of the pandemic situation in Hong Kong, we are seeing some degree of prices recovery which is approaching the benchmark levels before the 5th wave. Properties of unique characteristics and features have dominated the recent transactions, and we expect investors and funds' appetite for luxury and sites to continue."
"The fiscal and monetary policies adopted by various governments during the pandemic have begun to adjust to the onset of the latest rate hike cycle. Despite the latest move by the US Fed, given that local banks still have abundant liquidity and Hong Kong is expected to see mild inflation of 2% to 2.5% over the next couple of years, the negative real interest rate environment is likely to persist in the near future," Cherrie Lai said.