Robust home sales defy economic doom and gloom
Knight Frank launches the latest Hong Kong Monthly Report. In the office market, as flexible working arrangements have become prevalent in the wake of the COVID-19 pandemic, more tenants are taking the opportunity to explore viable alternatives to renting traditional office space. Purchasing sentiment in the residential market improved in February, as the fourth wave of COVID-19 cases slightly receded. Hong Kong’s retail market remained sluggish despite social-distancing restrictions being slightly relaxed after Chinese New Year.
Grade-A Office
Hong Kong Island
In February, overall Grade A office rents on Hong Kong Island adjusted to HK$77.5 per sq ft, falling 14.8% on a YoY basis. Smaller landlords under greater vacancy pressure have cut rents more aggressively, offering generous incentives to attract good covenant tenants. However, some landlords of prime buildings that have successfully leased vacant space as a result of rental adjustments and concessions have begun tightening up their leasing strategy.
As flexible working arrangements have become prevalent in the wake of the COVID-19 pandemic, more tenants are taking the opportunity to explore viable alternatives to renting traditional office space. As a result, there is increasing demand for co-working space from small to medium-sized companies.
Kowloon
Tenants in Kowloon continued to be cautious and adopt the wait-and-see approach after Chinese New Year, leading to a low level of leasing activity in February. As cost savings are crucial for business amid the economic uncertainty, tenants have tended to renew their leases to avoid the fit-out costs in new premises. Relocation cases were driven mainly by downsizing.
Given the introduction of the vaccination campaign in Hong Kong and across the globe, an upturn is expected in economic sentiment and business confidence. We expect leasing activity to be more robust in the coming quarters, as more multinational corporations that deferred corporate real estate plans owing to the COVID-19 pandemic will reactivate their plans in the near term.
Residential
Purchasing sentiment in the residential market improved in February, as the fourth wave of COVID-19 cases slightly receded. Bolstered by the soaring stock market and the prospect of economic recovery, underpinned by the citywide vaccination programme, sales activity was robust during the month.
Despite the lingering economic uncertainty, top-of-the-line residential assets continued to draw interest from high net-worth buyers.
The leasing market was also vibrant and has proven resilient despite the contracting economy. There were more enquiries from prospective tenants from overseas who plan to work in Hong Kong when the COVID-19 situation stabilises. During the month, a 10,804-sq ft house in Wharf Holdings’ 11 Plantation Road on The Peak, was leased at a monthly rent of HK$1,350,000 or HK$125 per sq ft, which is among the highest recorded rents ever for a home in Hong Kong.
Looking ahead, we expect developers to be active in launching new project sales, given strong interest from high-end buyers. But the downside risk has not dissipated amid the protracted pandemic. Fears of a fifth wave of COVID-19 infections may pose further uncertainty to the already hard-hit economy.
Retail
Hong Kong’s retail market remained sluggish despite social-distancing restrictions being slightly relaxed after Chinese New Year. According to the latest official statistics, retail sales value dropped by 13.6% YoY to HK$32.6 billion in January. The value of online retail sales was HK$2.4 billion, accounting for 7.3% of total retail sales value in January. The proportion was 3.3% in January 2020 before Hong Kong was hit by the COVID-19 outbreak. This shows that the pandemic has driven up e-commerce volume sharply, as many consumers have shifted spending from brick-and-mortar stores to online shops.
As business has been shaken badly in the absence of inbound tourists, some international luxury brands, which are the drivers of rents on prime streets and in premium shopping centres, continued to consolidate and reduce their presence in the city.
The retail market outlook will continue to be gloomy in the coming months, as the effectiveness of the mass vaccination programme and the opening of the border remain uncertain. The government’s announcement in the latest Budget that it would distribute HK$5,000 in electronic spending coupons to encourage domestic consumption is expected to provide limited support to the retail property market.