Which commercial real estate segment was the hardest hit by the fifth wave?

The fifth wave has significantly slowed down the property market in Q122.

Hong Kong’s commercial real estate market has been hit hard by the fifth wave of the COVID-19 outbreak with all its segments seeing a decline in rents and an uptick in vacancy in Q122.

Based on the report by CBRE, leasing sentiment weakened mostly in Grade A office, and retail segments.

Grade A offices in particular saw overall rents declining by 0.6% QoQ in Q1 and total vacant space expanding to another record high of 9.6 million sq. ft. this quarter.

The segment’s vacancy rates, meanwhile, remained at 11.6% despite recording a positive net absorption. According to CBRE, this is due to the slow take-up of new buildings.

In the retail segment, the high-street shop vacancy rate was up 0.8-ppt to 15.2% and rents fell by 5.9% QoQ.

Whilst the start of the year wasn't good for both Grade A offices and retail, CBRE said it expects to see a “stronger rebound” for the latter segment and increased leasing activity for the former, in the second half of the year.

Whilst the industrial segment also saw a slowdown in leasing momentum due to limited space availability and pandemic-related disruption, it still received a bit of saving from government demand to store healthcare products which led to the leasing of an additional 1.4 million sq. ft. of space this quarter.

This also helped pushed warehouse rents by 2.2% QoQ, its fastest growth since Q1 2015, and retained vacancy at 2.3%.

For the rest of the year, CBRE expects industrial rents to hike higher.

Apart from a slower leasing momentum, the fifth wave also pushed commercial real estate investment volume down during the quarter. In Q1, it declined 60% QoQ to HK$9.7b.

From the total volume, 40% or $3.9b were retail property investments.

CBRE, however, said investment demand will pick up in the next few months as social activities are targeted to gradually resume to normal in Q2 2022.