00:00I mean, tell us a bit more about this recovery, first and foremost here, and how sustainable do you think
00:04it is?
00:04Yeah, so broadly we see the economy recovering. So we saw GDP growth 3.5% last year.
00:10That's been driven very much at the top end of the market.
00:12If you look at the residential sector, the second half of last year we started to see the market find
00:17its feet.
00:17So we saw capital values go up. We know rents are at an all-time high.
00:21And that's given us a lot of constructive evidence to support the fact that we think that mass residential, in
00:27particular, will continue to grow.
00:28This year we're forecasting growth of at least 5%.
00:31And if you look at how the government has been releasing land plots for development, you see developers are also
00:37participating in that.
00:38And they're pricing it at the higher end of market expectation, which also means developers are constructually positive about the
00:43market as well.
00:45Can I just get your take, too, on the very, very top end of the market, right?
00:48That stamp duty that was tweaked to the upside.
00:50What kind of volumes have we seen there to merit that?
00:54And what do you think the effect is going to be?
00:55Apart from, of course, Yvonne having to put on ice that massive purchase at the peak.
00:58Oh, come on.
00:58My big investment is my big house.
01:03Good question.
01:04Last year we saw the most number of transactions over the $100 million mark since 2022.
01:08And in January already we saw 26 transactions.
01:11But it's a very small part of the market.
01:14So it makes up less than half a percent of all transactions.
01:18So the real story here is mass residential.
01:22For that luxury segment, we do think that the market will just cool off for a few months in terms
01:27of its transaction volume.
01:28But when the market digests this change in stamp duty, it might be four or five months.
01:33We do think that that will start to pick up again.
01:35What's going to be driving that?
01:36I mean, people say there's this whole FOMO effect after how many years of correction that mainland buyers are just
01:41lining up to come in and buy again.
01:43Is that what you're seeing?
01:44Yeah, Hong Kong buyers are also participating as well.
01:46If you look at the first-hand sales market, so brand new product coming to market, we estimate around 50
01:52% of that is mainland Chinese buyers.
01:54And then there is a real mix of the rest of the buyers that are coming in and looking at
01:58that market.
01:59There tends to be a correlation as well between the Hang Seng performance and residential.
02:05And obviously the stock market has performed really, really well.
02:07And if that continues to perform well, that's just another tailwind for mass residential capital values in 2026.
02:12Yeah, I think we have a chart to show us that, in fact, our producers are about to bring this
02:18up.
02:18They tend to mirror each other in terms of performance, which I guess is a perfect segue into the market's
02:26doing well.
02:27There's this massive IPO activity taking place in the city.
02:29And people talk about how that is, in fact, a pipeline for demand for office space, which has really seen
02:36a lot of new capacity come online.
02:38What's your outlook on office capacity here?
02:40Yeah, so office last year was the first year we've had structurally positive news, let's say in Central.
02:46We had two of the biggest deals ever done, leasing transaction-wise, last year, all in the space of a
02:51short period of time.
02:52So the market has changed. Rents have started going up in Central.
02:55It'll take a while for that to move out.
02:58Yeah, so last year we saw rents structurally move up by about 5%.
03:01We're forecasting another 5% this year in Central.
03:03That is structurally a little bit more challenging as you move out from that.
03:06But the market does tend to recover in Central first, and then it starts to participate wider than that.
03:11So if you look at trophy assets in the market, some of them already have less than 1% vacancy.
03:16And we're getting back to that period where we almost had a waiting list in the past for some of
03:20these buildings for major organizations to try and get a hold on to.
03:25Yeah, we talked about all these sort of firms that are moving in, right?
03:29Whether it is Central Yards and the like.
03:33Are you seeing a lot of companies really wanting to come back to Hong Kong and really set up office
03:38here?
03:39And what's the mix that you're seeing right now in terms of tenants?
03:43It's a really interesting mix.
03:44We do have some new economy groups, crypto, and we've got more mainland Chinese companies wanting to come through,
03:51whether that's through the IPO pipeline and having offices and expanding here.
03:54We're starting to see a bit more of that transactional volume.
03:57Multinationals are also expanding as well.
03:59So those two big deals that were done last year are multinational companies.
04:02We're still seeing a lot of that happening.
04:04And the one construct that is different this time around is that we're starting to see more companies
04:10who are current occupiers and tenants considering purchasing real estate.
04:15So we think in 2026 that could be a really big trend, and that would support rents coming back in
04:22more locations than just central.
04:24Because if a big organization wants to take out a building, if that building is currently tenanted, which a lot
04:29of them are,
04:30those tenants will have to find a new home.
04:32So structurally it takes out a building with vacancy in the market, and it pushes new demand across the rest
04:37of the city.
04:37So that could be a really big change for 2026.
04:41And what do you think is driving those big ticket items, you know, that motivation to purchase?
04:48Is that because assets have been trading on the lighter side of things, or is that just a lock in
04:54cost?
04:54I think it's two things.
04:55I mean, one, structurally we look at it that this is a really strong endorsement that Hong Kong is a
04:59place that a lot of these companies want to be in.
05:02And then secondly, they've now got an opportunity to potentially purchase real estate.
05:07Now, that won't play out for all of those groups that are currently looking in the market,
05:11but we've just seen Alibaba recently take on some real estate, and there are other organizations that are structurally looking
05:16to do that.
05:17And now is it time that there might be an opportunity to prize some trophy assets for long-term hold
05:22in the marketplace?
05:25It's interesting to kind of see that there might be some bottoms that are forming in Hong Kong.
05:29Are you seeing any of that in mainland China right now?
05:32Yes, so structurally mainland China still has oversupply, and it's going to take a little bit of time for that
05:36to be sort of fully fleshed out.
05:39Where we're focused at the moment is on sort of tier one markets.
05:43And if you think about the corporate side, there's a lot more activity now in Shanghai, Shenzhen, new economy drivers,
05:49technology that are starting to slowly grow those markets.
05:52So we're quite constructive around how that might play out over the next couple of years.
05:57Speaking of that, the intersection on that on the budget is, you know, the Hong Kong government seems to have
06:03earmarked a significant amount of money into this broader theme of AI, right?
06:07And aligning it with China, too.
06:09And aligning it with China with the five-year plan, yeah.
06:12Attracting AI firms into the city.
06:16I'm not sure if the northern metropolis goes into that, but yes, what are the non-central stories that we
06:21need to be talking about here?
06:22Yeah, I think that's pretty important for the long-term future of Hong Kong to move past just being a
06:28global financial center.
06:29But the other parts of that, which are ultimately going to keep us competitive for a long period of time.
06:33So we're very supportive of technology innovation growth in that part of the market.
06:38The other story that, you know, I think interweaves all of that as well is the talent that sits in
06:42the city and the expansion of the education sector here, which the government has been supporting for the last few
06:46years.
06:47That is a pipeline of talent to attract more of these AI and technology firms to set up in Hong
06:52Kong.
06:53We have five of the top 100 universities.
06:55No other city in the world can lay claim to that.
06:57And that's really valuable.
06:58That's also providing a lot of investors back into the market who are trying to cater for the accommodation sector
07:03for that.
07:04Then you've got the professors and those are going to be setting up, you know, incubators and new opportunities in
07:11the market.
07:11So that's a big part of the market that I think is under-talked about, but is also bringing back
07:16institutional investors to try to cater for their expansion.
07:19One part that has been still sore, I guess you could say, is the retail portion of real estate.
07:25Do you see that catching up this year too?
07:27The consumerism has fundamentally changed globally and, you know, that's been really hard felt in Hong Kong.
07:32So we don't structurally think that that is going to change dramatically this year.
07:36We do have more activity in the market from on the retail side where there are some incoming opportunities from
07:42mainland China, from Korea, F&B firms, but it's not a large scale.
07:46So we're still forecasting rents to go down five to 10 percent on for street level shops.
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