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Global economic turmoil and local sociopolitical unrest failed to prevent a sizable volume of capital flowing into Hong Kong in 2020. The city’s aggregate bank balance reached an all time high of HK$457 billion, more than eight times the figure registered at end-2019.

While the inflow of capital may have buoyed Hong Kong’s IPO market, it did not boost real estate investment demand. Rising vacancy and falling rents across all property types pulled down commercial real estate transaction volume by 23% y-o-y to just HK$52.9 billion, a 11-year low. However, the cheap cost of financing meant only a small number of distressed situations were recorded during the year. Despite the Hong Kong Monetary Authority (HKMA) lifting the loan-to-value ratio cap from 40% to 50% in August, banks retained a prudent stance towards lending.

Big-ticket sales were few and far between in 2020, with just seven deals worth over HK$1 billion recorded. The sale of Goldin Financial Global Centre for HK$14 billion and the HK$9.8 billion purchase of the Cityplaza One office block by a consortium led by Gaw Capital ensured the office sector accounted for 62% (HK$32.8 billion) of the year’s total sales. Strata-title premises comprised the bulk of the remainder of office deal volume.

Neighbourhood shopping malls remained keenly sought after amid relatively resilient leasing demand. Of the HK$11.8 billion-worth of retail transactions registered in 2020, 63% (HK$7.4 billion) involved neighbourhood properties. Industrial buildings fell out of favour in 2020, with just HK$5.7 billion worth of assets transacted, the lowest annual total since 2010. Redevelopment remained the primary driver of investment in this sector.

Travel restrictions and mandatory social distancing measures inhibited property inspections in 2020. This led to local buyers accounting for 51% of acquisitions, with overseas and mainland Chinese buyers less active until the tail-end of the year. While Chinese developers spent HK$34 billion on government land, accounting for close to 53% of the HK$65 billion total proceeds, this nevertheless marked a decline of 37% from 2019’s total. Aside from the aforementioned Cityplaza One deal, property funds were inactive.

Capital values fell across the board in 2020, reflecting the fall in rents. Office and retail yields expanded by 14 bps and 27 bps, respectively, while embedded alternative values ensured industrial yields were unchanged.

Figure 17
Figure 18 19



The recent removal of the Double Stamp Duty (DSD) for commercial properties will provide the investment market with a much-needed boost in 2021. While investor sentiment will take some time to recover to pre-pandemic levels, lower transaction costs should stimulate investment demand from end-users looking to capitalise on lower prices and a wider availability of space options.

In addition to banks becoming more willing to lend alongside the economic recovery, these factors should ensure transaction volume will recover gradually over the course of 2021.

The strong IPO pipeline and the strengthening Renminbi is set to attract office demand from mainland Chinese companies: demand that could be realised in both the leasing and investment markets. However, the removal of travel restrictions is a prerequisite for any pick-up in cross-border investment activity. Aside from well-tenanted assets, investors are expected to remain selective towards enbloc opportunities. Starta-title floors, however, will catch the attention of end-users.

A lack of clarity around the resumption of cross-border travel and high vacancy and will ensure investors remain cautious towards purchasing prime retail properties. In contrast, neighbourhood malls will continue to attract strong demand owing to their steady occupancy and value-add potential.

CBRE expects investors to target assets catering to fast-growing business sectors such as technology, telecoms, F&B, pharmaceuticals, elderly care and education. Property types including data centres, cold storage and commercial podiums that can accommodate these industries will be keenly sought after. Demand for industrial buildings with redevelopment potential will also be robust following the announcement of proposed standard rates for land premium negotiations in the 2020 Policy Address.

Smaller deals will see relatively stronger activity owing to lower purchasing barriers for private individual investors and corporate end-users. En-bloc purchasing opportunities may arise as portfolio owners offload properties to generate liquidity. Lower for longer interest rates will prevent investment yields from rising sharply.

Office and industrial capital values are expected to reach the trough in H1 2021 and will stablise once the rental downcycle comes to an end. The decline in retail prices is likely to continue until vacancy pressure alleviates.

Figure 20
Figure 21

Hong Kong SAR Real Estate Market Outlook 2021

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Henry Chin
金緯 博士
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