Knight Frank launches the latest Hong Kong Monthly Report. With more small and medium-sized companies looking for office locations in the non-core areas at a low rental level, the vacancy rate in non-core areas recorded a slight drop in September. In Kowloon, tenants were inclined to renew their leases at the attractive rent offered by landlords. Owing to uncertain market conditions and concern about interest rate hikes, a “wait-and-see” attitude is prevalent among buyers and homeowners. Sales activity in both primary and secondary residential markets recorded a decline. Hong Kong’s retail market remained weak. We believe a significant relaxation of the COVID-19 protocol will allow society to return to normal while still remaining vigilant, thereby improving local consumption sentiment and boosting retail sales.
Grade-A Office
Hong Kong Island
In the recent down market, the trend of flight-to-quality has persisted, as sizable companies continue to seek prime locations at attractive rent levels.
New buildings in Central, such as Cheung Kong Center II and The Henderson, which are now open for pre-leasing, have received massive interest from prospective tenants, given their prestigious location and unique building features.
However, the abundant future supply in Central will exert pressure on landlords to reduce rents in the short term, so we expect the rental trend to continue its downward adjustment in Q4 2022.
Kowloon
As overall business sentiment remained weak, leasing activity continued to slow down in September. Given the elevated economic uncertainty, tenants tended to be more cautious in making leasing decisions. Instead of relocation options, they were inclined to renew their leases at the attractive rent offered by landlords. Therefore, renewal cases dominated the market during the month.
After the announcement of the ”0+3” quarantine measure, overall business confidence is improving. Although the border is yet to be completely open, it is a start, at least to get some regional business travel going once again. Businesses are keeping their hopes up on the further relaxation of social-distancing restrictions and the lifting of all quarantine requirements. Only then shall we see a more significant rebound of economic activity.
Residential
Owing to uncertain market conditions and concern about interest rate hikes, a “wait-and-see” attitude is prevalent among buyers and homeowners. Sales activity in both primary and secondary markets recorded a drop of 8.2% and 5.2% MoM, respectively, because of weak market sentiment.
Amid demand shrinkage, the luxury market was quiet, with low transaction volume, and the number of enquiries and home viewings slowed down at the same time. One of the few luxury transactions during the month was a deal for a 2,454-sq-ft house at Springfield Gardens in Shouson Hill for HK$118 million. In the mass market, with homebuyer confidence ebbing, more homes were sold at a discount or under market price. Some property owners were desperate to cash in by selling their units, so prices remained under pressure.
Retail
Hong Kong’s retail market remained weak. Total retail sales value continued to underperform, falling 0.1% YoY to HK$28.6 billion in August. In general, consumers preferred to wait for the remaining second round of the voucher scheme distribution. This, coupled with some Hong Kong people leaving for overseas holidays under the new “0+3” quarantine scheme, dampened domestic demand.
Healthcare consumption continued to outperform among trade categories during the pandemic. For the first eight months of 2022, total value of medicine and cosmetics sales increased 2.7% YoY.
Moving forward, with the various pandemic regulations still in place, such as the use of the LeaveHomeSafe app, social distancing rules, and the prohibition of large group gatherings, we urge the government to ease most, if not all restrictions, as they are seriously hindering social and economic activity. We believe a significant relaxation of the COVID-19 protocol will allow society to return to normal while still remaining vigilant, thereby improving local consumption sentiment and boosting retail sales.