Knight Frank launches the latest Hong Kong Monthly Report. Activity in the Grade-A office leasing market remained focused on Kowloon East. Meanwhile, residential prices stabilised in June with more activity mainly in the primary sector, as developers launched new projects with deep discounts and other enticements. With prime street shop rents having returned to attractive levels comparable with those in 2011 and a slower decline in Mainland visitor arrival numbers, the local retail market is expected to bottom out early next year.
Office
Grade-A office leasing on Hong Kong Island remained subdued in June. On the supply side, tight availability limited choices in the market, while on the demand side, Mainland companies slowed their expansion pace in Hong Kong after the previous leasing boom. The Kowloon East office market remained very active, with the key driver being relocation demand from tenants across the harbour.
Looking ahead, David Ji, Director, Head of Research & Consultancy, Greater China, expects rents in core business areas to rise 5% during the year, while those in non-core areas could drop 5%. Wong Chuk Hang in Island South, another emerging commercial district, is expected to benefit from the scheduled launch of the new metro line by the end of the year, with increasing office leasing activity and rental levels.
Residential
According to the Land Registry, residential sales in June edged up 0.7% month on month, reaching 4,620 units. The gain was attributed mainly to robust activity in the primary market. Home prices, meanwhile, stabilised with more homebuyers returning to the market looking for bargains.
Several new residential developments were oversubscribed in June. This trend is expected to continue, with developers offering deep discounts and aggressive mortgage schemes to boost sales. Interest in the ultra-luxury residential market showed no signs of abating.
Given the increase in residential supply and uncertainty brought about by Brexit, David Ji maintains his forecast of a 5-10% drop in luxury home prices and up to a 10% decline in mass residential prices over the year.
Retail
The first half of the year proved to be very challenging for Hong Kong’s retail market. The downward path, however, is likely to come to an end early next year with the market moving closer to fully absorbing the changes in consumer structure and consumption patterns.
As prime street shop rents have returned to 2011 levels, they have become attractive for mid-end brands to consider entering the prime shopping areas. Therefore, we expect the retail market to gradually stabilise. Prime street shop rents could fall by another 5-10% in the remainder of this year and then bottom out early next year.