News release

Hong Kong’s property market to see uneven recovery in 2H2021

Decline in office and retail markets nearing the end, residential and industrial markets recover

July 14, 2021

HONG KONG, 14 July 2021 – Hong Kong’s property market began to see the silver lining in the first half of this year following the COVID-19 outbreak and social tensions over the last two years. More moderate declines in rents and capital values were recorded in the commercial property markets, while prices and rents of residential and industrial properties rebounded. The uneven recovery in the real estate market is expected to continue in the second half of 2021, according to JLL’s Mid-year Property Market Review and Forecasts released today.

Despite a higher level of leasing activities, Grade A office rents are still expected to correct mildly in the second half while investment activities will stay subdued. The residential and industrial markets are showing signs of recovery. Rents and capital values of high street shops are expected to rebound.

Office Market

The Grade A office leasing market improved in the first half of 2021. The market recorded a net withdrawal of 518,400 sq ft during the period, after the unprecedented level of net withdrawal of 2.7 million in 2020. Net withdrawal was recorded in all major office submarkets, except Kowloon East, in the first half of 2021.

It led to the overall vacancy rate increasing to 9.5% at the end of June, the second highest level since the end of April 2004. The vacancy rate in Central was relatively stable in the first half of 2021, while Tsimshatsui experienced the most substantial hike.

The overall Grade A office rents dropped 4.7% in the first half of 2021. The fall in rents has moderated compared with the fall of 6.6% in the second half of 2020. This was most obvious in Central’s office market: its rents were relatively resilient and fell only 3.2% year-to-date.

Alex Barnes, Head of Agency Leasing at JLL in Hong Kong, said: “Looking forward, we believe the gross leasing volume to improve in the second half of 2021. However, the market will continue to record net withdrawal during the period due to the considerable amount of marketable space to be made available in the next six months. It will drive the vacancy rate higher.”

“Despite rents continuing to face downward pressure, the initial phase of sharp rental corrections is behind us and rentals will drop mildly by 0-5% in the second half of this year. We expect to see rents bottoming out in the coming 12 months,” he added.

Hong Kong Grade A Office Indicator – % Change
Submarket Rent (1H2021) 2H2021 Rental Forecast
Central ▼3.2% ▼0-5%
Wanchai/Causeway Bay ▼6.3% ▼0-5%
Hong Kong East ▼5.1% ▼0-5%
Tsimshatsui ▼7.7% ▼5-10%
Kowloon East ▼5.7% ▼0-5%
Overall ▼4.7% ▼0-5%
Retail Market

Hong Kong’s retail sales remained reliant on domestic consumption as the pandemic continued. The jewellery and watches sector recorded strong sales rebound in the first half of 2021, but still around 60% less than its last peak sales level in 2018. The rebound of retail sales helped to slightly ease the vacancy pressure of high street shops and prime shopping centres.

The retail market is currently undergoing a major reset, with the tenant mix switching from a focus on luxury to mid-to-mass market retailing. International retailers targeting the mass market remain interested in entering Hong Kong’s retail market on the back of more affordable rentals. Meanwhile, ginza-style commercial buildings may need to re-address their tenant mix and switch from a focus on bars and restaurants to health and beauty in order to fall into line with market trends.

Leasing activity improved significantly in the first half of 2021 as asking rents softened. Rents of high street shops dropped 6.5% during the period, while rents for prime shopping centres fell 2.3%.

Oliver Tong, Head of Retail at JLL in Hong Kong, said: “Inbound visitations are expected to gradually resume as travel relaxation schemes are reviewed in the second half of 2021. However, the return of visitors will be mostly driven by necessity travel, such as business and family visits, with leisure travel only expected to return slowly. Local consumption will be further stimulated with the consumption voucher scheme coming into effect in the second half of this year. We expect high street shop rents to rebound about 0-5% in the coming six months, while rents for prime shopping centres will also rise 0-5%.

“Moreover, the pandemic has fuelled breakthrough in online sales in Hong Kong. The online sales surged 53.1% y-o-y in the first five months of 2021, the sharpest growth amongst all major retail categories. The pandemic has changed the way we go shopping. It is crucial for the landlords to introduce new concept and experiential retailers into their shopping malls to attract shoppers,” he added.

Hong Kong Prime Retail Indicator - % Change
Sector Rent (1H2021) 2H2021 Rental Forecast
High Street Shops ▼6.5% ▲0-5%
Prime Shopping Centres ▼2.3% ▲0-5%
Residential Market

Capital values for the mass residential market gathered momentum again and grew 3% in the first half of 2021, with the release of pent-up demand and virus containment measures in the city. The capital value of luxury residential properties grew 3.9%, fuelled by eye-popping transactions in the primary market, yet at the cost of slow sales velocity.

In the luxury residential leasing market, rents have bottomed out and rebounded slightly, supported by local demand triggered by a switch to working from home that has promoted upgrading demand.

The number of residential sales also picked up gradually from a monthly average of 4,562 in the first half of 2020 to 6,689 in the first half of 2021. There are also increasing trends in both the number and consideration of high-end residential transactions worth over HKD 20 million.

Notably, with a more comprehensive railway network in the city, the distance factor affecting home prices is diminishing owing to the significantly shorter travelling time between the New Territories and urban districts. Thus, the price gap of residential properties between the two regions has been narrowing over the past 10 years.

For example, in 2010, the price premium for The Hermitage in Tai Kok Tsui over that of Festival City Phase 1 in Tai Wai was 36%. However, the unit price gap of another two newly launched projects nearby, namely One Soho and Pavilia Farm III in 2021, has reduced to 8% only, reflecting the diminishing price premium of new residential projects in Kowloon over the New Territories as a result of the improved accessibility of the New Territories.

Joseph Tsang, Chairman at JLL in Hong Kong, said: “Low interest rates and a better-than-expected economic recovery will continue to support housing demand. However, the global economy remains to be affected by the pandemic and the flow of mainland capital to Hong Kong’s property market will remain limited due to the ongoing travel restrictions. We expect the capital values of mass and luxury residential to rise 0-5% in the coming six months.”

In the leasing market, he expects the rents of luxury residential will rise 0-5% in the second half of 2021 due to upgrading demand triggered by the shift to working from home during the pandemic.

Hong Kong Residential Indicator – % Change
Sector Capital Value (1H 2021) 2H2021 Capital Value Forecast
Mass Residential ▲3.0% ▲0-5%
Luxury Residential ▲3.9% ▲0-5%
Investment Market

Price corrections in the investment property market moderated in the first half of 2021 as investment sentiment improved. The capital values of Grade A office dropped 5.0% during the period due to rental decline and high vacancy. The decline of high street shop capital values moderated, down by 3.5%, as the retail market continued to rebound. Capital values of flatted factories increased 0.3%, owing to stable occupier demand and a more constructive sector outlook held by institutional investors.

Total investment volume of commercial properties worth HKD 500 million or above increased by 26% compared to the second half of 2020. About 31% of investment volumes were attributable to industrial properties, rising from 5% in the second half of last year.

More institutional investors actively invested in industrial properties in the first half of 2021, as they were attracted by a high yield of over 3.5% and robust occupier demand.

Local investors are eyeing on community retail properties. Investment considerations and the number of transactions for community retail surged by 25% and 98% y-o-y respectively in the first half of 2021. The buyers are mainly attracted by stable tenancy and rental income, as well as the high liquidity of this asset class.

Oscar Chan, Head of Capital Markets at JLL in Hong Kong, said: “We will see an uneven recovery in the investment property market as investors flock to acquire assets from bottoming sectors. The capital values of high street shops and flatted factories will go up 0-5% in the second half of this year as investment sentiment is improving. However, Grade A office capital values will continue its downturn and drop further by 5-10% in the next six months.”

Hong Kong Investment Indicator – % Change
Submarket / Sector Capital Value (1H2021) 2H2021 Capital Value Forecast
Overall Grade A office ▼5.0% ▼5-10%
High Street Shops ▼3.5% ▲0-5%
Flatted Factories ▲0.3% ▲0-5%

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 $16.6 billion in 2020, operations in over 80 countries and a global workforce of more than 91,000 as of March 31, 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit