Knight Frank today releases the third quarter (Q3) 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. In Q3, office supply pipeline directly impacted rental levels in most of the key cities. A shortage in supply in core areas coupled with strong demand will inevitably drive up rents such is the case of Hong Kong’s Central. In the luxury residential market, heavy pressure from the government has reduced transactions but high prices in key cities
remain. Even with wide-spread e-commerce physical shopping has in many ways found its place among consumers. This has supported stable growth of shopping malls in these cities.
In Q3, Beijing office supply and vacancy rate further increased, while office rental slightly declined. The Shanghai office rent especially Puxi’s are trending slightly downward while vacancy rate increased. In Hong Kong, strong demand and limited prime office supply has driven up Central office rents, but pressure remained on the Kowloon office rents due to large upcoming supply.
It is expected that the average Grade-A office vacancy rate in Beijing will keep increasing in Q4 2017, while the rents will continue to adjust. In the next 12 months, Shanghai Office market will see ample new supply bringing pressure to the rebound process of overall office rental. In Hong Kong, it is expected the two-direction growth between core and non-core areas in office rent will continue for the remaining of the year. In Taipei, there will be more supply of Grade-A office in the coming year bringing up overall vacancy to over 10%.
The Beijing luxury residential market did poorly during the traditional peak season starting from September due to government restrictions. Transaction volume stayed flat and prices went up in Q3. Shanghai luxury residential market transaction and prices declined in Q3. Since Q2, the Guangzhou government has tightened control measures causing luxury transaction volume to shrink although prices mildly increased. In Hong Kong, primary sales continued to dominate market sentiment last quarter.
We expect the Beijing luxury residential market to regain momentum in Q4, while demand remains stable. Shanghai luxury price will remain flat in Q4, while we anticipate a 3% increase in price in the next 12 months. The Guangzhou residential market is expected to see low transaction volume and stable yet trending downward prices. In Hong Kong, a mild increase in interest rate is not expected to have a noticeable impact on housing loan repayments in the short term. In Taipei, investment restriction rules for luxury mortgage would be re-discussed and potentially eased, creating more investment incentives on luxury homes.
The Beijing retail market continued to grow in Q3 2017. The Shanghai retail market achieved active performance in Q3. Three new shopping malls opened in Guangzhou, with total new supply of approximately 300,000 sqm. The Hong Kong retail sales value has been growing seven months in a row. The monthly sales of HK$35 billion has boosted market confidence. In Taipei, there were influx of international retail brands, significantly reducing vacancy and boosting rents.
The overall Beijing retail market development is expected to remain stable in the coming 12 months. Most of the new retail projects in Beijing in the future are expected to concentrate at non-core or sub-urban areas. In Shanghai, newly upgraded shopping malls will cause rents to increase steadily in the coming year, growing 3-5% over the year, while the overall vacancy will lower to approximately 8%. The large supply of shopping malls in Guangzhou in the coming 12 months will add pressure to retail rents. The Hong Kong retail market is expected to continue on the road to recovery. In Taipei, East District remains the benchmark commercial area due to its irreplaceable transport and positional conditions.