6 trends that will transform HK’s commercial real estate market in 2022

Leading this transformation is the focus on ESG-related compliance of companies.

The Year of the Tiger will be a year of significant transformation for Hong Kong’s commercial real estate, with six emerging trends driving changes in the market.

According to Cushman & Wakefield’s Hong Kong Market Direction 2022 report, the factor that will lead this transformation is the focus on ESG-related compliance of companies, especially REITs and property investment funds.

C&W said this trend will be seen both on the leasing and investment fronts, as fund managers are now required to undertake climate risk consideration as part of their investment process by the Securities & Futures Commission (SFC).

“Under the SFC requirement, large fund managers, with AUM at more than HK$8b, are expected to meet climate-related risk requirements as part of their investment strategy by August 20, 2022. All other fund managers must meet the same requirements by November 20, 20221,” C&W explained.

Given this, C&W said it expects “more property owners and und managers in the city will be required to identify and factor in climate-related risk management into their investment portfolios, as stipulated by the SFC.”

This year will also see bargain hunting for premium office properties by new economy finance companies like fintech and crypto, and alternative asset managers.

“Tenants have yet to defer their real estate decisions, but the re-implementation of WFH guidance could stall relocation requirements. However, opportunistic occupiers will look to capitalize on weaker sentiment,” the analyst said.

Meanwhile, C&W said it sees developers enriching landbanks in the Northern Metropolis.

“The Northern Metropolis strategy, together with ambitious upcoming infrastructure planning has boosted potential land values, which will encourage further site acquisition and site formation for future development in the New Territories,” C&W said.

“We also anticipate that most of these transactional activities will come from local developers, with a longer-term investment horizon and in-depth knowledge in mega-sized residential developments,” the analyst added.

Other factors which C&W said would drive transformation for the year include automation in warehouses, and the rising popularity of health and wellness trends in the retail sector.

“We will continue to see logistics companies progressively utilizing robotics and automation in their day-to-day operations. Furthermore, robotics and automation has the potential to help solve labour shortage problems via 24/7 operations, ensuring greater efficiency, speed, and accuracy,” C&W said.

On the rise of people wanting to live healthy lifestyles, C&W said this would forge demand for fitness centres, franchise or individually owned gyms, yoga studios, and sportswear retailers.