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News from Knight Frank Hong Kong

Major commercial land sales to set new price benchmarks for Hong Kong offices

15 June 2017

Knight Frank launches the latest Hong Kong Monthly Report. In May, two major commercial sites were sold, which should push up the capital values of Grade-A offices. Home sales dropped last month, owing to the ongoing implementation and further tightening of cooling measures. The retail market has reached bottom and is expected to stablise in the coming months.

 
Grade-A Office
 
Leasing
 
Mainland Chinese firms remained the key driver in Central, while cost-conscious foreign firms continued to move out from the district, with new supply on other parts of the island providing ample relocation opportunities. In May, most leasing transactions in Kowloon involved pocket sapce of below 3,000 sq ft.
 
Looking forward, David Ji, Director, Head of Research & Consultancy, Greater China, expects strong demand and tight availability are set to continue supporting rents in the CBD. The Kowloon leasing market is expected to become more active in June.
 
Sales
 
The spotlight in the market last month was on two major commercial land acquisitions: the Murray Road and Kai Tak sites. The results will further lift office values in their neighborhoods, although in the short term, both potential buyers and sellers will adopt a wait-and-see stance in search of an equilibrium. 
 
Residential
 
Residential sales dropped about 20% month on month in May 2017, attributable to the ongoing implementation and further tightening of property market cooling measures. However, Hong Kong’s home prices continued their upward trend. Official data show that home prices continued to climb in the 13 months ending April 2017, rising over 20%.  Amid the price rises, the affordability ratio increased to 65% recently.
 
Over the year, home prices are expected to increase 5-10%, while home sales are expected to reach around 60,000-65,000.
 
Retail
 
Hong Kong’s retail sales continued to stabilise, rising 0.1% year on year in April, the retail sales of “Jewellery, watches and clocks and valuable gifts” increased for the second month in a row. 
 
Visitor arrivals have been rising since December 2016, gaining another 1.9% year on year in April. A new trend has gradually emerged among Chinese visitors. The big spenders of luxury items a few years ago have been replaced by visitors on short trips to Hong Kong, as a lifestyle weekend retreat. This trend is expected to continue. 
 
David Ji believes that Hong Kong’s retail market has reached bottom and is expected to stablise in the coming months. Drops in prime street shop rentals should narrow and rents should then remain largely steady for a period of time. When the market bottoms out and rebounds will hinge on how retailers adapt to the new normal and are able to strategically boost sales.