Knight Frank today releases the first quarter of (Q1) 2017 Greater China Property Market Report which looks at the Grade-A office, luxury residential and prime retail property markets in Beijing, Shanghai, Guangzhou, Hong Kong and Taipei. During Q1 2017, residential markets in major Mainland cities witnessed upward trends in prices despite various market cooling policies. The office and retail markets faced various challenges in Q1, including a flood of new supply and the rising popularity of e-commerce.
In Q1 2017, Beijing's Grade-A office rents decreased slightly quarter on quarter, due to an increase in supply. Shanghai’s office rents remained flat. In Guangzhou, rents increased significantly as a result of an absence of new supply. The Hong Kong office market continued to polarise, with Hong Kong Island’s rents rising further due to limited supply and those in decentralised areas remaining suppressed amid abundant availability.
In the coming 12 months, with abundant new supply, Beijing’s rents will continue to decrease. In Shanghai, we expect a 3-5% growth in Grade-A office rents in core business districts. In Guangzhou, office rents will rise further. In Hong Kong and Taipei’s core areas, rents are also expected to rise further this year.
Beijing’s luxury home prices and sales volume witnessed upward trends over Q1 2017. Shanghai’s luxury residential market was faced with a fall in sales and a rise in prices. In Guangzhou, transaction volume declined sharply but prices still gained 4%. In Hong Kong, luxury residential sales and prices continued to rose, due to strong demand from both end-users and investors. In Taipei, an over 30% cut in luxury home holding tax next year led to a rebound in market sentiment, while the drop in prices also decelerated.
Luxury home prices in major Mainland cities should remain firm or rise slightly. In Hong Kong, while abundant upcoming supply and interest-rate rises will help suppress price growth, high land prices and strong demand will lend support to home prices.
Due to the New Year and Chinese New Year holidays, retail markets in major Mainland cities recorded good performance in Q1 2017, with slight increases in retail rents. Retailers maintained a cautious attitude towards expansion, being reluctant to open new shops. In Hong Kong, retail sales value and visitor arrival numbers saw further improvement in Q1. In Taipei, with declined Mainland visitor arrivals, some landlords started to retain tenants with lower rentals in prime retail areas.
In the coming year, we believe that retail rents in Mainland China will remain steady or rise. In Hong Kong, the retail market is expected to bottom during the first half of 2017 as it establishes a new normal, while in Taipei, rents are expected to remain stable in the coming 12 months.