Knight Frank launches the latest Hong Kong Monthly Report. In March, the Grade-A office market in Kowloon East saw robust activity, with large-scale transactions recorded in both the leasing and sales sectors. In the housing market, the number of mass residential sales decreased due to the introduction of new cooling measures, but prices continued to increase. Meanwhile, retail rents remained under pressure because of declining sales so far this year.
Grade-A Office
Compared to February, the office sales market was more active in March. Decentralised areas, in particular, saw some large transactions.
The latest initiatives launched by the Chinese government, including the ‘One Belt, One Road’ blueprint, the establishment of the Asia Infrastructure Investment Bank and the proposed Shenzhen-Hong Kong through train, will inevitably increase capital flow in the region.
David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank, remains optimistic about the office market in Hong Kong. Given the limited supply of office space and sustained demand from Chinese firms and certain industries, we expect Grade-A office rents to rise 0–5% during the year.
Residential
Following the introduction of a seventh round of market tightening measures by the Hong Kong Monetary Authority in February, residential sales decreased 28.2% month on month, in March.
The primary sector remained the market focus in March, with transactions mainly involving mass residential units. The secondary market remained subdued in March, with most landlords remaining firm on asking prices amid strong holding power in a low interest-rate environment.
To tackle the housing problem in Hong Kong, David Ji believes the government should not focus on suppressing housing demand, but effectively increase housing supply and provide assistance to first-time homebuyers. The government should ease restrictions on mortgage lending for first-time and young homebuyers.
Retail
The total retail sales value in February 2015 increased 14.9% compared with the same month in 2014. However, taking the first two months of this year together to remove distortions caused by the difference in timing of the Lunar New Year holidays, retail sales dropped 2.0% compared to the same period last year.
Nevertheless, in March, mainland luxury jeweller Shanghai Lao Feng Xiang opened its first store in Hong Kong at Hai Phong Mansion in Tsim Sha Tsui. The brand’s active development shows its confidence in the local retail market and the continuing trend of Mainland retailers using Hong Kong as a platform to springboard overseas.
In general, David Ji expects retail rents to face downward pressure this year, amid weakening visitor arrivals. Prime street shop rents could drop 5–10% over 2015.