Hong Kong recovery on track amidst high interest rates
Economic growth was strong, but investment and property markets were affected.
Hong Kong's economy is on a recovery path with five consecutive quarters of positive GDP growth, according to Marcos Chan, Executive Director, Head of Research, CBRE Hong Kong. Despite this progress, high interest rates are significantly disrupting investment activities and the property market.
"The Hong Kong economy, it's definitely recovering on track. We've seen five consecutive quarters of positive GDP growth, and we've recorded 2.7% growth in the first quarter, which is not bad," said Chan. He pointed out that the unemployment rate remains extremely low at around 3%, and some sectors are performing at pre-COVID levels, particularly domestic consumption.
However, Chan stressed that high interest rates are a major hurdle to faster recovery. "Basically, it ensures Hong Kong's investment activities, particularly that in the property market, to be kept at very, very low levels, and it also eliminates some of the wealth effects as well," he stated.
Changes in work and consumption trends are also affecting property demand. "People are demanding easier and more convenient ways to work. Flexible work hours, flexible workplace are changing the way how offices are configured as well. Demand for Office has definitely been reduced, in general, and that has something to do with the economic situation. It has something to do with the interest rate environment as well," said Chan.
The retail sector is undergoing a transformation with a shift towards online consumption. "Online consumption is taking a larger share as a percentage of total retail sales," Chan noted. This trend has led retailers to invest more in e-commerce rather than physical stores. Additionally, reduced spending by Chinese tourists in Hong Kong is causing retailers to scale back their presence in traditional tourist areas.
"Financing costs will likely be lower in six to 12 months' time, and that, hopefully, it's going to help to spin off a bit more investment activities," he said. The recovery of China's economy is expected to benefit Hong Kong, along with government investments into mega events that will boost demand for various services.
New policies to attract talent to Hong Kong are also promising. "There are also new policies in place to facilitate talent inflow into Hong Kong. So that helps to give a little support to Hong Kong's residential demand, as well as many other services as well," Chan explained. The development of the Northern Metropolis is another positive factor, expected to create significant business opportunities and support public investment demand.
Commentary
Ginza-style commercial building in neighbourhood areas attracts local consumption