Knight Frank today releases the third quarter (Q3) 2016 Greater China Property Market Report which looks at the Grade-A office, luxury residential and prime retail property markets in Beijing, Guangzhou, Hong Kong, Shanghai and Taipei. During the third quarter of 2016, the residential sector in major Mainland cities outperformed on the back of strong demand, while the office and retail markets faced various challenges, including the huge amounts of new supply.
Grade-A Office
In Q3 2016, Beijing’s Grade-A office market witnessed a drop in rents. In Shanghai, the Grade-A office vacancy rate rose owing to the closure of many P2P enterprises. The Guangzhou market was relatively quiet. In Hong Kong, the leasing market remained lukewarm on Hong Kong Island, limited by the lack of available space. The Kowloon market, in contrast, remained active. In Taipei, overall rents remained stable.
Looking ahead, with abundant supply, Grade-A office rents in Beijing, Shanghai, Guangzhou and Taipei are expected to decline or grow slowly. In Hong Kong, the market is expected to continue polarising with office rents increasing further in core business districts because of tight availability and dropping in decentralised areas, with abundant supply in the pipeline.
Luxury Residential
The luxury residential market in Mainland’s major cities remained active in Q3, driven by booming supply and strong demand during the traditional peak season. Among the three first-tier cities, Guangzhou led in terms of price growth, followed by Shanghai and Beijing. Luxury home prices are set to rise in Q4, given the high premiums for recent residential land sales, but growth will be slower, as the government has implemented more restrictions to cool the overheated market.
Luxury home prices in Hong Kong continued to recover in Q3, boosted by improved market sentiment amid robust activity in the primary sales market. Despite abundant housing supply and a potential US interest-rate hike, strong residential demand and competitive developer sales packages are expected to further stimulate the market. Home prices are set to remain stable over 2016.
Retail
The rapid development of e-commerce and abundant retail property supply continued to pose challenges to the traditional bricks-and-mortar retail property market, but prime retail rents and vacancy rates in Q3 managed to remain stable in Mainland’s first-tier cities. In the coming year, retail supply will remain abundant, particularly in non-core and emerging districts.
Impacted by fewer Mainland visitor arrivals, Hong Kong’s retail sales market remained weak in Q3. Along with the decline in visitor spending, both prices and rents of prime street shops decreased. This trend is likely to continue in Q4.