Knight Frank launches the latest Hong Kong Monthly Report. In the office market, rental levels in Hong Kong Island’s Grade-A office market showed a stable trend in May. Leasing momentum for Kowloon Grade-A offices continued in May, with most of the deals recorded in Kowloon East. The residential market remained robust in May. Newly launched projects recorded brisk transactions, reflecting strong demand from local buyers. The luxury market also followed the upbeat momentum with strong purchase sentiment. Hong Kong’s retail market remains gloomy even though concern about the coronavirus pandemic has largely subsided. The lower retail sales in April this year indicates that local consumers were still cautious about the economic and labour market outlook.
Grade-A Office
Hong Kong Island
Rental levels in Hong Kong Island’s Grade-A office market showed a stable trend in May. More developers are considering operating co-working space in their own premium office buildings to capture the increasing demand for flexible workspace and offer solutions to their in-house tenants. Given the lower capital costs and flexible leasing terms, the flexi workspace solutions are increasingly welcomed by corporate tenants that want to maintain a presence in the CBD area.
Apart from the co-working concept, there has been growing interest from corporations, especially in the banking sector, to apply environmental, social and governance (ESG) criteria in leasing requirements.
Kowloon
Leasing momentum for Kowloon Grade-A offices continued in May, with most of the deals recorded in Kowloon East.
Although not many sizable new lease cases from private corporations were recorded in May, various government departments have been actively looking for expansion, given the affordable rents. The sale of the Kowloon Bay International Trade & Exhibition Centre (KITEC) boosted activity in Kowloon East, with more tenant enquiries and site inspections during the month. Rents in the overall Kowloon market remained stable, continuing the expected bottoming-out trend in the coming three to six months.
Residential
The residential market remained robust in May. According to the Land Registry, 7,084 transactions were recorded in May, a drop of 3.3% MoM. The primary market outperformed, a surge of 47.3% MoM.
Newly launched projects recorded brisk transactions, reflecting strong demand from local buyers. The luxury market also followed the upbeat momentum with strong purchase sentiment. A few significant transactions in the ultra-prime segment were recorded.
On the leasing front, leasing demand is still coming mainly from local residents. As Hong Kong’s financial regulators announced that senior executives in the financial industry who meet certain criteria can seek an exemption from compulsory quarantine when they return or travel to Hong Kong, near-term leasing demand from expatriates is expected to rise.
With the likely resumption of cross-border travel as the government will further ease quarantine rules, we maintain a positive outlook for Hong Kong’s residential market. We expect overall residential prices to increase by 3% to 5% this year.
Retail
Hong Kong’s retail market remains gloomy even though concern about the coronavirus pandemic has largely subsided. The lower retail sales in April this year indicates that local consumers were still cautious about the economic and labour market outlook.
Amid weak consumption sentiment and the absence of inbound tourism, the luxury retail sector remained challenging. Retail sales of luxury goods totalled HK$2.6 billion in April, the lowest in eight months. Although retailers and landlords have offered various promotions and sales campaigns since mid-2020, these are only short-term solutions to stimulate spending.
Reshuffling of the tenant mix on prime retail streets persists, with an even more drastic transformation, as we saw banks occupying large duplex stores.
We expect the recovery in the retail market to pre-pandemic levels to take considerable time. Given the current market fundamentals, it is difficult to expect significant growth in the local consumption segment. On the upside, however, the government aims to start registration for the consumption voucher scheme in July. Also, some property developers have offered lucky draws in a collective effort with large companies and brands to incentivise local residents to receive COVID-19 vaccination. We expect these initiatives to drive positive sentiment and offer temporary support for retail sales in the coming months.