Knight Frank launches the latest Hong Kong Monthly Report. In Hong Kong Island, the overall Grade A office rents recorded a slight drop of 0.7% in 1H22. Recent tenant movement demonstrates that seeking building upgrades in tandem with space optimization is still the major trend in Kowloon. In the residential market, despite sales activity in the residential market slowed down in June, there were a handful of luxury transactions that set record prices for the year. The absence of tourism continued to have serious repercussions for Hong Kong’s retail market.
Grade-A Office
Hong Kong Island
Overall Grade A office rents on Hong Kong Island recorded a slight drop of 0.7% in 1H22. However, supported by growing leasing demand in core areas, overall monthly rents in Central and Admiralty registered a growth rate of 0.4% in both areas in 1H22.
Apart from the strong rivalry among office buildings to retain tenants, competition between landlords and co-working service providers is also fierce. Landlords are now more willing to offer flexible lease terms and provide fully fitted space for tenants. With the downward adjusted rent, more tenants are reconsidering the traditional office options.
We expect demand for prime locations to continue to grow and support overall leasing momentum, driving moderate rental growth in 2H22.
Kowloon
Recent tenant movement demonstrates that seeking building upgrades in tandem with space optimization is still the major trend in Kowloon amid the prevailing trend of more agile working practices.
Apart from the flight-to-quality trend, leasing momentum in Kowloon was driven by intra-market musical chair activity and largely supported by renewal transactions. A handful of significant renewals were recorded during the month.
Looking ahead, we expect leasing demand to continue to shrink amid the market uncertainty. Before new demand is created by the long-awaited border reopening, we expect tenants to remain cautious and rents to stay stable in the coming three to six months.
Residential
Sales activity in the residential market slowed down in June. Affected by the pandemic, in 1H22, Hong Kong's overall stamp duty revenue from home sales fell to HK$3.67 billion, dropping by 52% compared to that in 2H21, according to Inland Revenue Department data.
Although sales volume was low in the luxury market, there were a handful of transactions that set record prices for the year. This demonstrates that Hong Kong’s super prime properties remain sought-after by wealthy buyers despite the interest rate hike cycle and economic uncertainty.
Going forward, if the border control and other restrictions are further relaxed, demand from expatriates and Mainland investors is expected to return to the market. As the pandemic slows down, and the Hong Kong economy gradually returns to normal, we expect the high-end residential market to follow.
Retail
The absence of tourism continued to have serious repercussions for Hong Kong’s retail market. Despite the government’s launch of electronic consumption vouchers to boost retail sales, retailers that rely heavily on inbound tourists are still facing a huge challenge.
While shop rentals in prime locations dropped drastically, some prime spaces in Russel Street, in Causeway Bay, have become more affordable to local retailers.
In the near term, the outlook for Hong Kong’s retail market remains highly difficult, so retail rents are expected to face further pressure. Uncertainty in the economy, interest rate hikes and delays in the border reopening could weigh on consumption sentiment. On the bright side, however, the second phase of the HK$5,000 consumption vouchers to be disbursed in August could provide a tailwind, underpinning much-needed retail sales and restaurant receipts for the time being.