Knight Frank launches the latest Hong Kong Monthly Report. Grade-A office leasing remained active in Central but slowed down in Kowloon in January 2018. The office sales market was robust with a number of en-bloc transactions concluded. Residential sales remained stable in January 2018. Retail sales and visitor arrivals figures remained positive, but there is no fundamental development guiding the retail market back to its heyday.
Grade-A Office
Hong Kong Island
Central’s Grade-A office leasing market showed a polarising trend recently, with some Chinese firms looking to surrender and find replacement tenants due to closure or downsizing, while some multinational companies (MNCs) have been expanding. Looking forward, Grade-A office rentals on Hong Kong Island are expected to grow further, led by Central with sustained demand and limited space available.
Kowloon
Grade-A office leasing activity shrank around 50% month on month in January 2018. However, transactions mainly involved sizable offices in Kowloon East. We expect Grade-A office rents in Kowloon East to rise about 2% over 2018. The market will remain quiet in February following a typical Chinese New Year pattern.
Residential
Residential sales dipped 1.3% month on month to 5,270 in January, traditionally a low season, but surged 60.4% year-on-year (Y-o-Y). Meanwhile, the residential leasing market was quiet at the beginning of the year.
Looking forward, David Ji, Director and Head of Research & Consultancy, Greater China at Knight Frank, believes the leasing market is likely to become active again in March or April. While luxury units available for lease will remain limited, demand is likely to be sustained. As such, we forecast that luxury residential rents will see further growth, by a mild single-digit magnitude over 2018.
Retail
The annual total retail sales value of Hong Kong reached HK$446.1 billion in 2017, up 2.2% Y-o-Y. However, this was the second lowest level in the past five years.
Mainland Chinese visitor arrivals increased by 3.9% Y-o-Y in 2017, reaching 44.4 million. However, tourism is no longer a leading force to drive retail sales in Hong Kong.
As Hong Kong’s physical retail is still seeking a new identity amid challenges from e-commerce, no reverting signs are expected for street shop rentals in the short term.