News release

Lack of catalysts to boost the growth in real estate market

Residential prices will drop 5 - 10% in 2022

July 12, 2022

HONG KONG, 12 July 2022 – Hong Kong’s overall property market has been gradually improving after the fifth wave of COVID-19 infections was under control in the second quarter of 2022. However, sentiment in the commercial leasing and investment markets would remain subdued in the second half of 2022 as growth catalysts are lacking especially if border control restrictions remain. The faster pace of interest rate hikes and a substantial supply pipeline will put pressure on housing prices, according to JLL’s mid-year market review and forecast released today.

(From left to right) Paul Yien, Executive Director of Office Leasing Advisory; Joseph Tsang, Chairman of Hong Kong; Jeannette Chan, Senior Director of Retail, and Oscar Chan, Head of Capital Markets

Office Market

The overall Grade A office market was stable in the first half of 2022, despite the city being hit by the fifth wave of the Covid-19 pandemic. The market recorded net absorption of 1.25 million sq ft during the period, on the back of realisation of pre-commitment in new supply and improved occupancies in decentralised locations. The overall vacancy rate retreated to 9.4% at the end of June, while the overall office rental level decline moderated further to 0.2% in the first half of the year.

Central is leading the office market recovery, driven by demand for premium office space. The district registered rental growth for the fourth consecutive quarter with rents rising 0.8% in the first half of the year.

The expansion demand mainly came from funds, private banks, flexible office space and healthcare occupiers. Funds and private banks continued to look for headcount growth in the city and upgraded workspace to support the needs of a tight talent market. In addition, there were fewer sectors who downsized their office space.

New demand from mainland China firms was subdued due to the border control mechanisms that have remained in place for the last two years. However, the share of leasing volume contributed by existing mainland tenants with upgrading and expansion demand has started to pick up since the second half of 2021 and reached 12.1% of the total in the first half of 2022, comparing to about 7.1% in 2021.

Paul Yien, Executive Director of Office Leasing Advisory at JLL in Hong Kong, said: "We have witnessed a sign of recovery from the downturn in the office market, and believe the positive net absorption will continue to improve in the second half of the year owing to sustained occupier demand who continue to look for high quality options and upgrade workspace for talents. Although the new office supply will reach a record high of 5.0 million sq ft this year and will drive the vacancy rate higher, new office buildings will have a competitive advantage in the leasing market and attract leasing interests as more companies are looking to upgrade their workspace. It will be one of the market focuses."

"Central will be the focus of market activities in the remaining part of the year. The submarket’s office rents are currently 28.3% lower than the market peak in 2019, which is attractive to tenants who are looking to upgrade and expand. We expect Central to lead the rental growth and climb 0% to 5% this year due to the demand growth of existing occupiers. Overall office rental growth, however, heavily depends on whether the pandemic will remain under control and relaxation on travel restrictions and border control," he added.

Hong Kong Grade A Office Indicator – % Change

Submarket Rent (1H2022) 2022 Rental Forecast
Central ↑ 0.8% ↑ 0-5%
Wanchai / Causeway Bay ↓ 0.2% ↓ 0-5%
Hong Kong East ↓ 3.1% ↓ 0-5%
Tsimshatsui ↓ 0.7% ↑ 0-5%
Kowloon East ↓ 1.0% ↓ 0-5%
Overall ↓ 0.2% ↑ 0-5%

Retail Market

The fifth wave of the pandemic affected all major retail outlets and pushed back the retail market recovery during the first half of the year. The adjourned market activity amid worsened sentiments led the vacancy rate of high street shops to hit 17.5% as at the end of June, up from 15.9% as at end of 2021. Rents of high street shops as at end of the second quarter of 2022 have dropped 75.3% from the historical peak in the third quarter of 2014 and are now 3.6% below the rental level during the SARS outbreak in 2003.

However, the market has begun to see improvements towards the end of the second quarter with demand from retailers gradually picking up as confidence towards the business environment slowly returns. F&B, bakeries, coffee shops and supermarkets have been actively seeking opportunities for expansion. Meanwhile, the new concepts that are encouraged by a change in consumer habits towards experiential shopping, such as kids entertainment, art galleries, and car showrooms, have also been seeking for expansion opportunities.

In addition, Hong Kong retail market has remained attractive to overseas retailers. The number of newcomers from overseas to the city increased by 47% y-o-y during the first half of the year, with 60% of them coming from the F&B sector.

Jeannette Chan, Senior Director of Retail at JLL in Hong Kong, said: "We have experienced the worst moment so far since the initial outbreak of Covid-19. The market is and will be very policy-driven and the current sentiment is not strong enough to translate into more concrete market activities. However, we expect the market to see a return to growth when restrictions are further lifted as the pandemic situation stabilises. The timing of tourism restoration remains critical to a more visible retail market recovery in the long run."

The occupancy rate of prime shopping malls remained steady during the pandemic period as landlords offered multiple relief measures to secure their tenants. However, the over 2.4 million sq ft of new prime shopping centre supply that has slated for completion this year will translate into some rental and vacancy pressure to landlords.

Chan expects that retail rents will rise 0% to 5% this year as leasing activity picks up and prime stocks are gradually taken up.

Hong Kong Grade A Office Indicator – % Change

Sector Rent (1H2022) 2022 Rental Forecast
High Street Shops ▼ 9.8% ▲ 0-5%
Prime Shopping Centres ▼ 4.8% ▲ 0-5%

Residential Market

Home sales picked up rapidly after the social distancing measures were relaxed in April. The average monthly transaction volume rebounded by 48.4% q-o-q to 4,975 transactions in the second quarter, lending support to the housing market that otherwise was facing increasing headwinds on the interest rate front. Indeed, the policy relaxation-induced recovery of the housing market has been weaker than that seen in the first half of 2021, which recorded a 3% price growth in mass residential.

In the luxury housing market, buying sentiment improved slightly in the second quarter and a number of record-breaking prices for luxury residential were recorded. Capital values of luxury residential rebounded by 1.2% q-o-q in the second quarter, and rents of luxury residential also lifted by 1.0% q-o-q during the same period, supported by local demand.

In the land market, the Civil Engineering Works Index by the Civil Engineering and Development Department showed construction costs surged by 10.8% in 2021, followed by another 3.2% growth in the first quarter of 2022. On the back of the construction cost surges and interest rate hikes, JLL expects developers will turn more conservative in land bidding to maintain the total development cost and existing profit margins.

Joseph Tsang, Chairman at JLL in Hong Kong, said: "The land sale market sentiment will stay subdued as housing prices are likely to stay stable in the coming years. The surge in construction costs and interest rate hikes will add to developers' required risk premium and there will be fewer aggressive players in the market as the mainland developers have already turned conservative in the land market of Hong Kong with mainland China’s economy slowing. As a result, land prices will stay at a more reasonable level."

Tsang expects the average mortgage rate will continue to rise in the remainder of the year, driving capital values of mass residential to drop 5% to 10% in 2022, while capital values of luxury residential will fall 0% to 5%. Home sales activities in the second half will likely focus on projects along major infrastructure nodes as overall buying sentiment stays lukewarm.

Hong Kong Residential Indicator – % Change

Sector 1H 2022 2022 (Full year)
Mass Residential Capital Values ▼ 3.9% ▼ 5-10%
Luxury Residential Capital Values ▼ 1.3% ▼ 0-5%
Luxury Residential Rental Values ▼ 0.8% ▼ 0-5%

Capital Market

The commercial investment market softened in the first half of 2022 as the economy and the property market were affected by the fifth wave of the Covid. Total investment volumes of commercial properties dropped 37.9% from the previous six months to HKD 29.2 billion in the first half of the year.

Industrial properties remain the most sought-after assets by institutional investors, given their defensive nature and relatively higher yield than other property types. About 56% of the total investment volume in the first half of the year involved industrial properties. The capital value of prime warehouses rose 4.1% y-o-y in the first half and was the best performer among all property types.

Hotel is another popular investment asset, in particular for investors seeking conversion into co-living or multi-family housing. Transaction volumes of hotel assets rose 15% in the first half of 2022 compared to that in the second half of 2021.

Oscar Chan, Head of Capital Markets at JLL in Hong Kong, said: "We believe the investment market will remain modest in the second half of 2022, as the property sector lacks new demand and mainland China's economy is slowing. The market is unlikely to see any major breakthrough and will stay modest unless the border restrictions are relaxed."

"We expect industrial assets to remain the hotspot for investors, such as cold storage, mini-storage and data centre, for re-purposing, which offer a higher return. Capital values of industrial properties will outperform the market and rise 5% to 10% this year. However, the sales of the hotel will slow as the availability of discounted stock has been exhausted," he added.

Hong Kong Investment Indicator – % Change

Sector Capital Value (1H2022) 2022 Capital Value Forecast
Overall Grade A office ▼ 0.7% Flat
High Street Shops ▼ 5.5% ▲ 0-5%
Industrial ▲ 4.1% ▲ 5-10%

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $19.4 billion, operations in over 80 countries and a global workforce of more than 100,000 as of March 31, 2022. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit