• Home prices saw the steepest drop in the last decade, down by as much as
  20% from the August peak and look to drop by another 10% in 2019 amid poor
  sentiment
• Property investment market recorded all-time highs in both the
  transaction volume and considerations in 2018, but the record is unlikely to be
  repeated in 2019
• Greater Central office rents are projected to drop by 5% in 2019 due to
  dampened demand, but rents in non-core areas will be supported by cost-driven
  relocations
• Demand for retail expansion faces headwinds, but strong growth in PRC
  tourist numbers could be a silver lining that supports retail rents in core
  areas, except Central.

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HONG KONG,
CHINA -�Media OutReach�-�6
December 2018 - Cushman &
Wakefield, a global leader in commercial real estate services, noted that
global uncertainties have made an impact on the Hong Kong property market,
leading to falling home sales and prices, alongside decelerating growth in
office and retail rents in core areas. The property investment market has begun
to cool with transaction volumes in Q4 expected to shrink to half the level in
Q3. The outlook for the first half of 2019 is muted for all sectors.

�

Residential: Sentiments chilled after robust H1

Home sales
peaked in Q2 (18,881 residential S&Ps) this year buoyed by positive
sentiment early in the year. With the U.S. and China beginning to cross swords
over bilateral trade issues towards the end of Q2, however, monthly residential
S&Ps began dropping below 5,000 in August. As market sentiment has
weakened, home sales in Q4 dropped further to 4,243 and 2,635 in October and
November respectively, and the whole quarter is expected to close at about 9,400
S&Ps, making Q4 2018 the worst performing quarter since Q1 2016.

�

Mr Alva To, Cushman & Wakefield's Vice President,
Greater China & Head of Consulting, Greater China commented, "Primary sales surpassed secondary
sales for the first time since late 2015, a sign that buyers preferred to be on
the sideline while landlords who had reaped the profits during the up-cycle
were more willing to sell on some discount. However recent sales of primary
projects are also sluggish against the weak market sentiment."

�

In fact, the
decline in home prices has accelerated since August, with the price of
representative estates such as City One Shatin and Taikoo Shing dropping by
20.0% and 15.7% respectively as of December, whereas Residence Bel-Air and The
Harbourside have dropped by 11.3% and 14.0% respectively over the same period.
In other words, the gains in prices recorded during 2018 have been erased for
many estates.

�

Mr To said,
"The last major drop in home prices from mid-2015 to mid-2016 was induced
by policy factors. This time, however, the drop is much steeper, and we expect
the impact of global uncertainties, including trade tensions and rates moves,
will continue to cloud the market outlook over the near term. We expect sales
to be mainly driven by the launch of primary projects and those secondary homes
at major discounts, and home prices could drop by another 10% next year, before
finding support from sales of much discounted homes."

�

Investment: Record-high 2018 transaction volume and
considerations amid strong headwinds

From January to the
end of November, a total of 409 major transactions (each with a consideration
of over HK$100 million) for a total consideration of HK$220.6 billion were
recorded, reflecting an all-time record high for the property investment market
in 2018. However, the gains concentrated in H1 of the year, with souring buyer
sentiment leading to muted investment activity in H2.

�

While volumes in Q1
(143) and Q2 (142) were at quarterly record-high levels, the market began to
cool in Q3 following the growing trade tensions, with transaction volumes in Q3
dropping 37% from the Q2 level. With more buyers moving to the sidelines, transaction
volumes have dropped further in recent months, with volumes in Q4 expected to
be less than have those in Q3. The total considerations in Q4 thus far
accounted for only 22% of the value in Q3.

�

Mr Tom Ko, Cushman & Wakefield's Executive
Director, Capital Markets in Hong Kong, commented, "With 409 major
transactions recorded from January to now, 2018 is set to be another
record-breaking year for the investment market, although the gains mainly
happened during the first half of the year. Since Q3, seasoned investors have
become more prudent in the face of the growing global uncertainties. We expect
the market to remain cool in 2019 as seasoned investors remain cautious, until
there is more clarity to the external situation."

�

"Luxury
residential took the lion's share in terms of transaction volume in Q4 thus far
and we expect the investment interest will still focus on this asset class as
most transactions will be underpinned by end-user demand. In view of strong
demand fundamentals and government policy support, industrial properties are
likely to remain favorable over other commercial asset classes," added Mr
Ko.

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Office:
Central rents remain highest globally but occupier demand dampened by
uncertainties

Global uncertainties have affected the Hong Kong office market
since Q3, the average Grade A rent in Greater Central edging higher by only
0.2% QoQ to HK$138.2 per sq ft per month (net effective rent) as of Q4. The
Prime Central rent stood at HK$164.8 per sq ft per month, up 0.3% QoQ.

�

The CBD has been impacted by external factors more than other
districts due to a fall in take-up by PRC firms in the face of a continuing
exodus by MNC's. As a result, the territory-wide net absorption fell to a level
of -11,744 sq ft in Q4, moving into negative territory for the first time in
two years.

�

While this was a result of returning stock in most districts
overwhelming net take-up, it is worth noting that leasing activity in some
areas such as Hong Kong East and Hong Kong South was relatively robust,
supported by cost-driven relocations. This has also led to increases in rents
in these two districts during the last quarter, by 2.3% and 6.7% respectively.

�

Despite the fluctuation in net absorption over the course of 2018,
the overall availability of Grade A space in the Hong Kong office market
remained stable during the year at around 7.0%. Mr John Siu, Cushman & Wakefield's Managing Director, Hong Kong,
said, "In Q4, whilst business activity slowed due to on-going trade
tensions, the lack of available space in Greater Central where availability is
at 5.1% (Prime Central at 4.2%) meant that rents were not negatively impacted.
Cost sensitive occupiers will continue to be attracted to the choice, quality
and value offered in Kowloon East (13.0% vacancy) and Hong Kong South
(11.1%)."

�

The co-working sector has been a significant source of occupier
demand this year, particularly with PRC operators behind some of the biggest
leasing deals in core areas that intensified the competition for market share
against more established western operators. Mr Keith Hemshall, Cushman & Wakefield's Executive Director, Head
of Office Services, Hong Kong said, "The co-working sector has shown
remarkable growth to date, but we expect expansions to slow in 2019 amongst all
but the largest players amid a more cautious business environment."

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Retail:
Core rents came around, outlook mixed

Compared with other sectors, the impact from global uncertainties
on the retail leasing market has been less severe, as the sector was propped up
by substantial growth in tourist numbers, particularly those from Mainland
China, and strong sales of jewelry and watches. Market sentiment was robust
during the first half of this year, before turning more cautious in Q3 in the
face of the growing trade tensions. However, tourist arrivals remained strong
in Q4, thanks partly to the launch of the XRL and the HKMZ Bridge, which is
expected to support retail sales towards the year end.

�

Core retail rents in Q4 thus remained stable, with all districts
gaining from 0.3% to 1.2% QoQ, except for Central where rents continued to drop
by 1.6%. In contrast to a YoY drop in rents by 3.3% to 5.8% as of Q4 2017,
rents in Causeway Bay, Tsimshatsui and Mongkok have increased by 1.5%, 2.3% and
5.6% respectively since January 2018, while Central rents dropped by 6.3% over
the same period. The rental performance of Causeway Bay, Tsimshatsui and
Mongkok have come around in 2018 thanks to improved market sentiment,
especially in the first half of the year. In addition, vacancy in core areas
continued to improve over the course of 2018, with zero vacancy in Causeway Bay
for both Q3 and Q4.

�

Mr Kevin Lam,
Cushman & Wakefield's Executive Director, Head of Retail Services, Hong
Kong, commented, "The low vacancy in
core areas has been critical to the stabilizing of retail rents. However the
demand for retail expansion on the part of operators is weak amid the ongoing
uncertainties. We expect rental growth of 1% to 3% in core areas in H1 2019,
with the exception of Central where rents are projected to see a drop of 3% to
5%."

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F&B rentals dropped continuously throughout 2018, despite a
steady increase in F&B spending. Mr Lam commented, "The F&B sector
is challenged by a perpetual lack of manpower and increase in labor costs,
which greatly hindered the ability of operators to expand. The core areas have
been hit harder than the non-core areas, where cheaper manpower is more readily
available. This is particular the case for Causeway Bay where F&B rents
dropped by 8.4% year-to-date."

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Being in the city with the highest retail rents globally, local
operators continually look for breakthroughs in the retail scene by introducing
exciting and relevant customer experiences. Mr Lam said, "Some of the
best-performing trades in the retail leasing market this year, such as
athleisure and multi-brand cosmetics/personal care, have invested in
positioning and store designs in order to create better experiences for their
customers. This will be a trend to watch in 2019 when operators will likely be
conservative in terms of expansion, in the face of external
uncertainties."

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About Cushman & Wakefield

Cushman
& Wakefield (NYSE: CWK) is a leading global real estate services firm that
delivers exceptional value by putting ideas into action for real estate
occupiers and owners. Cushman & Wakefield is among the largest real estate
services firms with 48,000 employees in approximately 400 offices and 70
countries. Across Greater China, there are 20 offices servicing the local
market. The company won four of the top awards in the Euromoney Survey 2017
& 2018 in the categories of Overall, Agency Letting/Sales, Valuation and
Research in China. In 2017, the firm had revenue of $6.9 billion across core
services of property, facilities and project management, leasing, capital
markets, advisory and other services. To learn more, visit www.cushmanwakefield.com.hk or follow us on
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