Supported by Talent Policies, Emerging Sectors Such as Rental Apartments and Student Housing Set to Attract Investor Attention

HONG KONG SAR - Media OutReach - 19 June 2023 - Global real estate services firm Cushman & Wakefield today released its Hong Kong Investment Market Review and Outlook 1H 2023 report. Despite the border reopening, Hong Kong's large-sized (exceeding HK$100 million) non-residential investment market had yet to rebound in the 1H period, constrained by the prevailing high-rate environment. The market was chiefly driven by local investors and owner-occupants seeking bottom-fishing investment opportunities. The 1H 2023 investment market report closely follows the publication earlier this month of Cushman & Wakefield's Hong Kong Talent Housing: A New Niche Sector report. The new research study highlights that expat professional and non-local student numbers in Hong Kong are set to rise under the government's new policies to attract talent. These inflows will spur renewed demand in rental apartment categories such as co-living, multifamily, and student housing. In turn, the firm expects to see growing investor interest in these niche housing sectors. Hong Kong Investment Market Review and Outlook 1H 2023 report key takeaways:

• As of June 15, large-sized (exceeding HK$100 million) non-residential transaction activity for the 1H 2023 period recorded 31 deals totalling HK$18.1 billion, down 45% y-o-y from 1H 2022.
• Local investors, capital-rich buyers and owner-occupiers were the main drivers of the investment market; 2H 2023 transaction activity is expected to rise, bringing estimated full-year consideration to HK$50 billion.
• Hotel asset and private land site transactions were active in 1H 2023; emerging sectors such as rental apartments and student housing are likely to gain greater traction from investors ahead.

Overview of Large-Sized Non-Residential Investment Market Despite the gradual return to normalcy after the border reopening, investors in Hong Kong remain cautious in the high-rate environment. Rising financing costs, coupled with limited options for high-yield properties in the market, have resulted in an impasse between buyers and sellers. Thirty-one large-sized (exceeding HK$100 million) non-residential deals with a total transaction volume of HK$18.1 billion were recorded in 1H 2023, with the average deal size standing at HK$585 million. Cushman & Wakefield's Executive Director and Head of Capital Markets, Hong Kong, Tom Ko, said, "Since the border reopened in February, the market has been anticipating an improvement in overall investment sentiment. However, the impact of interest rate hikes has outweighed the boost from the border reopening. Currently, the banking mortgage rate for commercial properties can be as high as 6%, deterring investors from entering the market. Nevertheless, property prices have corrected notably since the pandemic, creating an opportune time for local investors and end-users to take advantage of the current market and bottom-fish. As a result, these buyers were the most active in 1H 2023, with local capital accounting for almost half of the total transactions. We are now also observing greater activity from mainland investors and state-owned enterprises when compared with the prior three years of the pandemic." Tom Ko continued, "The 2H 2023 outlook largely depends on interest rate movements. The market expects an increase of 0.25 to 0.5 percentage points in 2H, with the high rate environment expected to last for some time. We believe that the market will continue to be supported by end-users and capital-rich investors with limited assets looking to bottom-fish before prices fully rebound. We expect total volume of large-size non-residential transactions to reach around HK$50 billion for the full-year 2023." Investment Transactions by Sector Among all sectors, private land sites accounted for over 30% of transaction volume in 1H 2023, predominantly due to a headline transaction of a development site in Mid-Levels. Office and retail assets each accounted for 21% of the total consideration, including strata-title offices, high-street shops, and retail podiums, supported by demand from end-users and retail recovery trends. The industrial sector has been relatively resilient with active transactions over the last two years, and investors are still keen to explore opportunities in this sector. However, the more aggressive asking prices from landlords have led to a slowdown in industrial transactions this year. In the hospitality sector, the number of hotel deals has risen amid recovery in tourist arrivals and accommodation needs since the border reopening. Tom Ko commented, "Hotel transactions have seen an increase in recent quarters, with several notable headline acquisitions in the market. Some investors are confident in the hotel sector's recovery, particularly with the return of inbound travel after the border...