Commercial property market price corrections ‘less severe’ in 2021

Gross leasing volume is expected to pick up in 2021 as tenants start making longer term real estate decisions.

Low interest rate will continue to support housing demand

Despite the volatile pandemic situation and geopolitical tensions clouding the path to recover in the property market, the price corrections will be less severe in 2021, according to JLL Hong Kong’s latest forecast published yesterday.

According to the report, leasing demand remained subdued with a -2.5 million square feet (sq. ft.) net absorption this year, amongst the highest withdrawal ever recorded in the office market. Vacancy rate in the overall office market also rose to 8.8%, the highest level since 2004.

“Despite subdued leasing demand in the near term, gross leasing volume is expected to pick up in 2021 as tenants start making longer term real estate decisions. The vacancy rates will continue to rise in 2021, albeit at a slower pace,” JLL Hong Kong head of markets Alex Barnes said.

Moreover, rental decline in traditional business districts was more significant as more tenants sought cost-effective options, as Central’s rents dropped the worst at 22.7% this year.

Barnes noted that rental fall would be less significant next year compared to 2020, as they expect office rents to drop 5% to 10% in 2021 across all major office submarkets, with the exception of Tsimshatsui.

“Lower rents can increase the city’s competitiveness, potentially positioning Hong Kong as a more attractive location to conduct business,” he said.

Meanwhile, global quantitative easing to the COVID-19 outbreak has eased the pressure on residential prices caused by a soft economy.Capital values of mass residential dropped only 1% in 2020, but capital values of luxury residential dropped 8.2% due to the weak investment sentiment.

JLL Hong Kong chairman Joseph Tsang mentioned that the low interest rate will continue to support housing demand in 2021, but the market activity will remain closely tied to the broader economy and unemployment trend.

“We expect unemployment to spike after the Employment Support Scheme ends. Although market activity is expected to pick up mildly if the Hong Kong-China border reopens, transaction volume will remain much lower than historic levels in times of high economic uncertainties,” he said.

Tsang expects the capital values of mass residential to drop 0% to 5% in 2021, whilst capital values of luxury residential to drop 5% to 10%.

CHARTIST: JOBLESS RATE HITS RECORD 6.6% IN Q4 2020

The number of jobless across Hong Kong continued to rise in Q4, beating the previous three-month period and hitting a new record, swept away by a fourth wave of infections in the city.

On a seasonally adjusted basis, the unemployment rate increased to 6.6% in October – December 2020, according to data from the Census & Statistics Department. This is higher than the 6.3% unemployment rate in the September – November 2020 period and the 6.1% jobless rate in Q3 2020.

By numbers, total employment decreased by around 0.1% or 2,400 to 3.647 million in Q4 from 3.65 million in September - November 2020. The labour force in October - December 2020 was 3.89 million, about the same as that in September - November 2020.

“The labour market deteriorated again due to the fourth wave of local epidemic which started in the latter part of November,” commented Secretary for Labour and Welfare, Dr. Law Chi-kwong. Unemployment Rate (seasonally adjusted) (%)

Source: Census and Statistics Deparment