Hong Kong’s real estate market is showing signs of improvement amid the start of the US Federal Reserve’s much-anticipated rate-cutting cycle and a recent uptick in the stock market, with the commercial property vacancy rate dipping and the residential market poised for a rebound driven by prospective buyers’ cautious optimism.
According to a report released by global real estate services firm Cushman & Wakefield on Tuesday, verbal inquiries on the residential market have picked up slightly following the Fed’s interest rate reduction of 50 basis points on Sept 18.
“This suggests that market sentiment and transaction numbers could both gradually move upward in the fourth quarter,” said Edgar Lai, senior director of valuation and consultancy services at the company’s Hong Kong office.
Lai said he expects residential transaction volume for 2024 to increase 15 percent to 20 percent to around 50,000 units.
But some potential buyers are adopting a wait-and-see strategy regarding the sustainability and pace of rate cuts in the coming months. This stance is evident in the numbers, with monthly residential sales less than 4,000 in both July and August, and only 2,850 in September.
ALSO READ: HK real estate market feels rising rates, hopes for relief
“Against this backdrop, if the rate cut and stock market comeback can persist, the wealth effect will bring renewed confidence to the residential market,” said Rosanna Tang, executive director and head of research at Cushman & Wakefield Hong Kong.
Tang said she expects home prices for the full year to decline within a 5-percent range compared to 2023.
Rents climbed 6.2 percent year-on-year in the first eight months, fueled by demand from inbound professionals and students. If this trend continues, the sector could record rental growth of 5 percent to 10 percent this year, the property services company said.
The commercial real estate market is showing resilience as net absorption for Grade A office space has posted positive figures for four consecutive quarters, with the third quarter alone absorbing 324,100 square feet. The availability rate of Grade A offices dropped to 19.3 percent, the first decline since the first quarter of 2022, as no new office supply came online.
ALSO READ: C&W: HK real estate investment sees mild growth in Q2
“This suggests that market momentum has gained pace when compared to 2023,” said John Siu, managing director of Cushman & Wakefield Hong Kong.
The vacancy rate for high street shops continued to fall in the third quarter, reaching a post-COVID-19 pandemic low of 8 percent, fueled by a revival in leasing activity of both local and international brands.
In the past six months, tenants in the financial sector have ramped up their presence in key districts, with several banks opening wealth management centers aimed at high-net-worth clients from local and mainland markets. Online brokerage firms are establishing brick-and-mortar locations in bustling areas to boost brand awareness and capture a broader customer base.
Siu said he is optimistic about the potential impact of stimulus measures from the central government, interest rate cuts, and a rebound in the Hong Kong stock market. He anticipates these factors will drive consumer spending and strengthen retail leasing, expecting high street retail rents across districts to rise from 4 percent to 9 percent for 2024.
READ MORE: SAR's initiatives create opportunities for real estate market
Commercial property services provider CBRE shares this view, noting in a report released on Monday that if the economies of the mainland and Hong Kong continue to recover, lower interest rates and the mainland’s monetary easing policies could drive an increase in demand for offices.
Additionally, the firm believes that a potential depreciation of the Hong Kong dollar with the rate cuts could enhance tourist spending, stimulating retail demand in Hong Kong and thus improving the leasing market for street shops.