Hong Kong’s population has been expanding almost every year for the past 60 years. More recently, the city has been experiencing a clear decline. According to the Hong Kong Census Department, the city saw a net outflow of around 93,000 residents in 2020, followed by another 23,000 in 2021; and early 2022 numbers suggest that an even greater net outflow of people. Over this period, Hong Kong’s population has contracted by around 2%.

This trend has emerged since the political tumult of 2019 and the enactment of the National Security Law thereafter in July 2020 may have merits and demerits. Repeated outbreaks and new variants of COVID-19 battering the city throughout 2020 and 2021 might have compounded the push factors, as related social-distancing measures have prompted some citizens to head for the door.

The most immediate concern of the business community is Hong Kong’s stringent travelling measures, and a few large MNCs are relocating some of their staff and regional headquarters away from the city, namely, L’Oreal, Moet Hennessy and VF Corporation. Singapore is one such beneficiary, with its ease of doing business, tax incentives, and open borders, offering an attractive alternative. Dubai is also benefitting from the relocation of talent, welcoming Pepsi, Unilever and P&G employees. Other notable destinations experiencing an uptick are Japan, South Korea and Thailand.

Sustained shifts in population composition can have a significant impact on real estate for several decades. Many European cities, for example, are experiencing ageing populations as birth rates decline in tandem with increased longevity. A prolonged continuation of this trend would result in labour force contraction and companies would be constrained in terms of their growth potential. Ultimately, this would translate to reduced demand for commercial real estate.

That said, it is unlikely to have a material impact on office space demand in the near-term. Net outflow of people may subside as the city starts to reopen and stringent border controls and inbound quarantine restrictions ease. Despite the onset of economic recovery being delayed due to the protracted fifth wave and the government revising down projected full-year GDP growth to 1-2%, the announced roadmap to re-opening is expected to provide a much-needed boost to business confidence. Corporate real estate expansion plans are expected to gradually pick up as stabilisation returns and travel restrictions ease. In 2022, Grade A office rents and capital values are forecast to grow 0-5%. Investment yields are predicted to expand slightly throughout the year.

Other structural factors pose greater threat to demand for office space, including the growth of flexible space, or new shifts in the way people work. In addition, broader geopolitical tensions, supply chain constraints and inflation concerns pose headwinds to economic growth.

Hong Kong’s status as an international business hub is dependent on its ease of doing business and its ‘one country, two systems’ framework has historically provided a source of competitive advantage. With its dense population and lack of natural resources, its ability to retain and attract talent has always played a key role in achieving sustainable economic growth. It is therefore essential for it to maintain its desirability as a city in which to live, work and play.

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