Knight Frank launches the latest Hong Kong Monthly Report. Grade-A office leasing was slow in November, both on Hong Kong Island because of limited availability and in Kowloon owing to seasonal factors towards the year end. The rise in the double stamp duty rate is expected to reduce the number of residential sales transactions in the coming months, but prices should remain steady. Improved retail sales and visitor figures in October reaffirmed our forecast that the local retail market should reach the bottom in the first half of 2017.
Grade-A Office
The Grade-A office leasing market on Hong Kong Island remained subdued last month, as the lack of options limited activity. The key demand driver remained Mainland firms, especially those in the financial sector. Meanwhile, multinational corporations continued to downsize or relocate to reduce costs.
Looking ahead, David Ji, Director, Head of Research & Consultancy, Greater China, expects Central’s Grade-A office rents to continue to outperform the market in 2017 because of tight availability.
On Kowloon side, leasing activities were relatively slow in the past month, with fewer companies looking to consolidate or relocate towards the year end. Abundant new supply in the pipeline will impose downward pressure on Kowloon office rents in 2017. Supply will be concentrated in Kowloon East, with over 2 million sq ft scheduled for completion.
Residential
According to the Land Registry, in November, residential sales volume increased slightly from October, mainly because the figures reflect the situation in the weeks before the stamp duty rise. The December figures are expected to drop with the combined impact of the stamp duty rise and seasonal effects.
Primary sales became quiet in November, with limited new launches, as the market was absorbing the impact of the stamp duty rise. The super-luxury sector, however, remained strong.
Looking ahead, David Ji does not expect a mild US interest-rate rise to dampen the local residential market, but abundant supply, as well as economic and policy uncertainties, may drag down mass residential prices by about 5% next year.
Retail
The retail market saw further improvements in recent months. The decline in retail sales continued to narrow, falling just 2.9% year on year in October. In particular, we saw sales of luxury products begin to stabilise. However, more international retailers became reluctant to retain their prime street presence.
Looking forward, David expects a more notable fall in retail sales in December, as the strong dollar will encourage outbound tourism in the Christmas holiday. On the leasing front, retrenchment by international brands will put further pressure on landlords in the near term. However, we reiterate our forecast that prime street shop rents should reach the bottom in the first half of 2017 if the recent signs of stabilisation of inbound tourism and retail sales persist after the holiday season.