Knight Frank launches the latest Hong Kong Monthly Report. The stock markets of both the Mainland and Hong Kong experienced a volatile August, weakening housing demand from both investors and end-users. With uncertainties in the stock markets and the devaluation of the RMB, Hong Kong’s prime retail property market continued to slow, alongside declines in Mainland visitor arrivals and their purchasing power. However, the Grade-A office sales and leasing markets were not notably affected. They are expected to remain resilient, with supply in major business districts being limited.
Office
The office sales market remained active in August, with a number of en-bloc transactions being recorded. The Grade-A office leasing market also remained robust last month, despite uncertainties in the stock market. Vacancy rates continued to decrease across the territory, with only pockets of space left available in the market.
Looking ahead, David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank, expects vacancy rates to remain low for a sustained period of time. In Central, rents could increase another 2% by the end of the year, while rents in Kowloon East will remain stable during the same period.
Residential
Residential sales volume declined last month, attributable to weakened demand caused by the slump in both the Mainland and local stock markets. However, home prices still recorded minor growth, due to strong end-user demand. The primary sector remained the market focus, with developers active in launching new flats and offering beneficial packages, including deep discounts and second mortgages.
David expects residential prices in Hong Kong to remain firm for the rest of the year. Luxury residential prices are set to grow 2–5% in the year, while mass residential prices could increase 5–8%.
Retail
In Hong Kong, persistent inflation in rents and labour costs, alongside the softening consumption of Mainland visitors, continued to impose downward pressure on the profitability of retail business, especially towards the higher end of the market. To survive the headwind, some retailers are consolidating their retail networks and shutting down underperforming stores.
Looking ahead, Hong Kong’s retail sector is expected to continue to face challenges. More vacant street shops are expected to emerge as retail tenants surrender their spaces. Street shop landlords are expected to become more negotiable on rents and provide more concessions upon rent renewal. Rents of street shops in major retail districts could fall 10-15% over 2015.