China’s Reopening Will Boost Hong Kong Markets

Laura Cha, the chairman of the Hong Kong Exchange, stated that despite Beijing's dismal yearly GDP growth rate in 2022, Hong Kong markets are poised to benefit from the openness of the Chinese economy.

The National Bureau of Statistics said that the Chinese GDP increased by 3% last year, slightly exceeding the forecasts of a Reuters poll but falling far short of the official aim of roughly 5.5%. GDP increased 2.9% year over year in the fourth quarter.

The China’s reopening is predicted to boost Hong Kong markets

The government's severe "Zero Covid" containment measures weighed on business activities, resulting in one of China's lowest annual GDP figures in over 50 years, with the exception of the earliest onset of the Covid-19 pandemic.

The reopening of China's borders at the very end of 2022 is predicted to cause a strong rebound. China's economy will recover as soon as the border is opened. Its economy expands and recovers from the previous two to three years, Hong Kong will undoubtedly profit from that as well.

Impacts on Hong Kong real estate markets

The reopening of Hong Kong's borders with mainland China and the rest of the world would probably increase demand for office space in the city, but economists do not anticipate a large increase in rents.

People predicted a wide range of office rentals, from a rise of as much as 3% to a decrease of as much as 10% this year. The entire gross floor area of all buildings in Hong Kong's Central business district will be equal to 14.5 million square feet of additional office space, a record high for the city.

Rents are likely to decrease by 5%. Due to the reopening of the border, there is a chance that demand would pick up, especially from Chinese companies. Despite this, international corporations will continue to be cautious when planning expansions due to the unstable global economy and expensive financing costs. However, cost control and escalating vacancy pressure will continue to affect rents until demand is strong enough to reserve this trend.

Office demand is expected to increase as a result of the stock market's recovery, the relaxation of many Covid-19-related restrictions, and the upcoming reopening of the border with the mainland. The return of Chinese tourists and businesses to the region may cause prices to rise due to increased demand. This, in turn, is likely to prompt further interest rate increases by monetary authorities, dampening any recovery. However, there are still some uncertainties due to the vacancy left over from 2022 completions and worries about how quickly the economy will recover.

In general, the relaxation of Covid restrictions in China will undoubtedly benefit the rest of the area and Hong Kong's real estate investment sector.

Hong Kong real estate market will become more vibrant in 2023

Retail to be ‘first runner’

In terms of both rents and prices, we predict that the retail sector, particularly the high street shop segment, will be the "first runner" in the post-Covid recovery in 2023. According to experts, retail rental performance has increased by 8% year on year, but it is still 25% to 30% lower than pre-Covid levels.

Local consumption will remain "an important driver" for Hong Kong's retail market in the coming year. The Mainlanders' shifting shopping habits over the last three years may paint a different picture of the new retail market sentiment.

Imports and overseas travel

According to Goldman Sachs Group IncHong Kong, Thailand, and Singapore will likely benefit the most as China’s reopening its economy. This will lead to an increasing demand for imports and overseas travel.

In addition, Hong Kong's GDP could increase by 7.6% as exports and tourism income increase, while Thailand's GDP could increase by 2.9%. According to the report, Singapore's impact is 1.2%, while Malaysia's is 0.7%.

The estimates are based on the assumption that China's current reopening will increase domestic demand by 5 percentage points while pushing international trips back to 2019 levels.

Travel spending in Hong Kong is expected to increase by 6% of its GDP. According to the economists, the impact could be even greater when Chinese citizens have significant "pent-up" demand for travel after 3 years of border closures.

An increasing demand for imports and overseas travel in 2023

Final thoughts

One day after border restrictions were lifted, Hong Kong is "quite optimistic" about its economic prospects in 2023, with China's reopening expected to soften any potential blow the city may sustain from the looming global downturn. As soon as the Hong Kong economy gets back on its track, global investors will see the opportunities here.

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