Knight Frank launches the latest Hong Kong Monthly Report. Amid the recent unstable political atmosphere and the delay in the launch of Shanghai-Hong Kong Stock Connect, prime office rents dropped slightly in Central and Admiralty in October, but continued to rise in other areas of Hong Kong Island. In the residential sector, prices came under downward pressure amidst abundant housing supply in coming years and concerns of a potential interest rate rise next year. In the retail property market, leasing activity in prime retail areas remained subdued, with vacancy levels rising in secondary streets.
Prime Office
Despite the recent uncertainty over the local political environment, the continued implementation of market-cooling policies and the potential interest-rate rise in the US, investment sentiment remains positive and a few large en-bloc office acquisitions were recorded in October, indicating that investors are still optimistic about the long-term outlook.
Recently, the office market in Central has followed two prongs of development. On the one hand, due to a lack of availability in the majority of prime Grade-A office buildings, expanding Mainland financial institutions have been finding it difficult to secure new office space. However, on the other hand, international finance firms have been downsizing staff numbers since the financial crisis are requiring less office space in the CBD, leading to large amounts of vacant space in certain buildings.
Looking ahead, David Ji, Director, Head of Research and Consultancy, Greater China at Knight Frank expects office rents across the city to remain largely stable for the remainder of the year. Meanwhile, office rents in Kowloon East are likely to outperform the market by increasing 2–3% in coming months.
Residential
During the first nine months of 2014, the total volume of residential sales reached 46,764, an increase of 21% year on year. Of these sales, 5,324 involved luxury homes worth HK$10 million or above, a rise of 53% year on year. The number of primary home sales transactions during the period increased 73% year on year, while secondary residential sales rose a mere 9%. Over 2014, David expects home prices to remain stable or slightly drop and the transaction volume to rise 15–20% compared with last year.
Retail
Amid the recent unstable political atmosphere in Hong Kong, with slower retail sales so far this year, all four of the major retail districts—namely Central, Causeway Bay, Mong Kok and Tsim Sha Tsui—experienced slight declines in street-shop rents last month.
With the changing consumption pattern of Mainland visitors, the retail market is expected to continue to evolve towards the mid-end of the market. David expects prime street shop rents to fall up to 10% next year and those in secondary streets to decline up to 15%. In contrast, rents in prime shopping malls are expected to climb 3–5% in 2015, while those in non-core shopping malls—such as those in the New Territories near MTR stations—could increase up to 5%.