Knight Frank launches the latest Hong Kong Monthly Report. In the office market, owing to a resurgence in the number of local COVID-19 cases and the return of social-distancing measures, tenants generally took a wait-and-see approach. In the residential mass market, both property owners and potential buyers turned cautious, putting sales and purchase plans on hold, leading to a sharp fall in the number of enquiries and unit views. Despite this, unique and exclusive luxury properties were still sought-after by wealthy buyers. In the retail market, in battling the challenging environment amid exceptional uncertainty, landlords and tenants should work together and try to find a mutually beneficial solution.
Grade-A Office
Hong Kong Island
Owing to a resurgence in the number of local COVID-19 cases and the return of social-distancing measures, the growth momentum witnessed in the office leasing market in Q4 2021 was inevitably pulled back. Tenants generally took a wait-and-see approach, leading to a high vacancy level of 8.5% for Hong Kong Island.
Driven by the anticipated return of US-listed Chinese enterprises and the growing appetite from finance and cryptocurrency firms, the rental level in Central, especially in premium Grade-A buildings, continued to pick up. This trend is expected to persist until mid-2023.
Given the city’s experience in dealing with the pandemic, business activity and sentiment during the recent outbreak may not have been affected as heavily as it was last year. Rental levels in the overall market will be supported by an uptick in the CBD. However, other submarkets may witness a further reduction in rents.
Kowloon
Market activity was strong, and rents in Kowloon continued to bottom out in the first three weeks of January. However, the outbreak of the fifth wave of the pandemic abruptly hampered market activity and business sentiment. Many on-site inspections were cancelled, and rents started to drop before Lunar New Year.
Tenants reconsidered their real estate plans at the beginning of the year, leading to more transactions of sizable new leases at market level.
The fifth wave of COVID-19 disrupted the bottoming-out trend. Sizable relocation cases came to a halt starting in mid-January, and more short-term renewals and restructuring cases started to appear amid weak business sentiment.
We expect tenants to slow down their business decision-making progress in the face of mounting uncertainties, resulting in subdued leasing momentum and a low level of activity in the first quarter.
Residential
Owing to the outbreak of the fifth wave of the pandemic, market activity slowed down abruptly in both the primary and secondary residential markets. Primary sales slipped 28.6% MoM to 1,081 because of a limited number of newly launched projects before Lunar New Year.
In the mass market, both property owners and potential buyers turned cautious, putting sales and purchase plans on hold, leading to a sharp fall in the number of enquiries and unit views. In the buyers’ market, a small number of sellers were desperate and cut prices substantially to sell their properties, resulting in some isolated unexpectedly low-price transactions in blue-chip estates.
Despite this, unique and exclusive luxury properties were still sought-after by wealthy buyers. Notable transactions were recorded in January.
Likewise, in the land sale market, local developer SEA Holdings won the luxury residential site in Repulse Bay for HK$1.19 billion, or an accommodation value of about HK$62,352 per sq ft. This demonstrates developers’ confidence in the outlook for the luxury residential market in Hong Kong.
Because of the worsening fifth wave of the pandemic and tightened social distancing restrictions, developers will likely delay or reschedule their launch plans for new projects. Overall residential market sentiment and activity are expected to remain inactive in the near term.
Retail
The resurgence of COVID-19 infections in the community prompted the government to re-impose stringent social distance restrictions in recent weeks. The epidemic has repeatedly delayed border reopening plans, and retailers missed the important consumption seasons of Chinese New Year and Valentine’s Day. In addition, starting from 24 February, only vaccinated people will be permitted in shopping malls, supermarkets and other specified premises under a “vaccine pass” scheme. All these measures have severely dampened consumer sentiment and impacted footfall, and will take a heavy toll on the retail sector.
Under the current social distancing rules, F&B sector is among the most affected. While there was some light at the end of the tunnel by entering 2022, the current COVID outbreak has significantly dampened not only their short-term performance but could drive some operations out of business.
Being different to the previous waves of pandemic, sales performance in community malls are not suffering less as the current outbreak is spreading across the city. Community lockdowns and compulsory testing have significantly lowered the footfall in most shopping centres in both core and non-core areas.
We believe that the latest round of measures under the Anti-epidemic Fund will provide some timely relief to retailers. Given the severe epidemic situation, retailers are still in dire straits and potential tenants are not convinced for opening new stores. In battling the challenging environment amid exceptional uncertainty, landlords and tenants should work together and try to find a mutually beneficial solution.