Knight Frank launches the latest Hong Kong Monthly Report. In the office market, the office market on Hong Kong Island continued to stabilize in July. Leasing activity was more notable in certain sectors that outperformed the general market. Stepping into Q3, the bottoming-out signals are more visible, as leasing activity regained momentum in the overall Kowloon office market. In the residential market, purchase sentiment in the primary market was strong during the month, and the luxury market continued to see upbeat momentum. Hong Kong’s retail market continued to see moderate growth amid the economic recovery. The government’s consumption voucher scheme started in early August, coupled with promotion programmes launched by retailers and landlords, this has stimulated local consumer sentiment.
Grade-A Office
Hong Kong Island
The office market on Hong Kong Island continued to stabilise in July. Leasing activity was more notable in certain sectors that outperformed the general market.
Given the robust IPO activity, some Chinese mainland law firms have been actively upgrading their offices, relocating to premium buildings whilst expanding their footprint. Some international legal firms have also started to review their real estate needs and office space configuration, as they have adopted a more agile work model amid the pandemic.
Given the gradual improvement in market conditions, we expect office rents to undergo milder declines in the coming quarters. We revised our forecast for office rents on Hong Kong Island in full-year 2021 to a moderate drop of 5-8%.
Kowloon
Stepping into Q3, the bottoming-out signals are more visible, as leasing activity regained momentum in the overall Kowloon office market. Leasing activity in core Kowloon districts, especially in Tsim Sha Tsui became active again during the month.
In addition to increasing demand for core locations, there have been more expansion cases amid more affordable rent levels.
In view of the current positive business sentiment, we expect the market to resile gently from the trough in Q4, which will lead to an increase of 1-3% in rental level in the Kowloon market in full-year 2021.
Residential
The residential market performed steadily in July amid the stable pandemic situation and a gradually improving local economy. Purchase sentiment in the primary market was strong during the month, with a 5% MoM increase to 2,052 transactions. The luxury market continued to see upbeat momentum, with more big-ticket deals of over HK$200 million recorded.
Buoyed by the rebounding local economy and the stabilising pandemic situation, the market outlook remained optimistic. Together with the record-low HIBOR, this will further encourage more potential homebuyers to get on the property ladder.
Looking ahead, however, mounting concern about an economic slowdown in the Chinese mainland in the wake of the outbreak of the Delta variant, as well as a delay in reopening the border, may result in short-term uncertainty in the local residential market.
Retail
Hong Kong’s retail market continued to see moderate growth amid the economic recovery.
The government’s consumption voucher scheme started in early August, coupled with promotion programmes launched by retailers and landlords, this has stimulated local consumer sentiment, with foot traffic visibly increasing in major shopping streets and malls. Retail sectors that will benefit more should be the consumption of daily necessities, home appliances, furniture, and electronic products. It is expected that those retail sales will have a more prominent performance in the second half of this year.
In the near term, we expect quality shops would still weather the uncertain market. While retailers have regained confidence with the further revival of domestic consumption, retail premises with corner and extensive shop frontage, high-headroom or with technical provisions for operating restaurants will see a 5-10% increase in rents compared to last year.