Knight Frank launches the latest Hong Kong Monthly Report. In the office market, sentiment in the leasing market rebounded in August, leading to an uptick in rental levels, especially in the CBD. With demand re-emerging in August, the Central Grade-A office market recorded the lowest vacancy rate since November 2020. Kowloon’s office market showed clear signs of bottoming out during the month, with a significant rebound in leasing activity. The residential market saw strong demand amid the stable pandemic situation and gradually improving local economy. Given the combination of upside factors, the retail market is expected to remain stable in the fourth quarter.
Grade-A Office
Hong Kong Island
Sentiment in the leasing market rebounded in August, leading to an uptick in rental levels, especially in the CBD. Headline rents in premium buildings such as Two IFC and AIA Central recorded increases of 6–8% during the month. With demand re-emerging in August, the Central grade-A office market recorded the lowest vacancy rate since November 2020.
Driven by the growing demand for hybrid workspace, more landlords have joined the bandwagon of operating their own co-working space. Looking ahead, offering hassle-free, move-in-ready space and co-working space by landlords are some key market trends that we expect to gain steam.
Kowloon
Kowloon’s office market showed clear signs of bottoming out during the month, with a significant rebound in leasing activity. New leases were on the rise, with most of the deals concentrated in Kowloon East and Tsim Sha Tsui closing at an average rent of HK$22 per sq ft or less.
Tenants are filling the vacant space in premium buildings, which have been greatly bolstered by the strong leasing momentum. There were more enquiries and inspections, especially for quality projects and new office developments, such as International Trade Tower in Kwun Tong and AIRSIDE in Kai Tak.
Some landlords started to firm up asking rents, especially for vacant space in easily accessible locations. Meanwhile, we note increased business confidence among tenants, reflected by their eagerness to review their real estate plans. We expect this to lead to a more stable trend and even a slight uptick in rents in some buildings in Q4 2021.
Residential
The residential market saw strong demand amid the stable pandemic situation and gradually improving local economy. Despite the slower pace of sales by developers, first-hand property projects recorded booming sales with a massive oversubscription by local buyers. The second-hand market continued to register high-volume transactions of around 5,000 for the sixth consecutive month.
Along with the high transaction volume, home prices have been on a bull run for seven consecutive months. The housing price index edged up further by 0.46% MoM in July, just short of the record high by 0.15% in May 2019, according to the Rating and Valuation Department.
Against the backdrop of surging home prices, coupled with strong local demand and low interest rates, another wave of record home prices may soon emerge. We expect buying interest to persist until the end of year, but buyers will become more cautious and take a wait-and-see attitude as prices are approaching new highs, leading to stable or modest growth in activity in the fourth quarter. Total transaction volume for the whole year is expected to be between 62,000 and 65,000.
Retail
Hong Kong’s retail market continued to recover gradually. According to the latest official figures, total retail sales value registered slight growth of 2.9% YoY to HK$27.2 billion in July. However, compared to June sales, the value dropped by 3.2%. This may reflect the fact that consumers held off spending in July to wait for the disbursement of the government’s electronic consumption vouchers in August.
In the retail leasing market, small to medium-sized shops with a monthly asking rent of about HK$150,000 or below saw emerging signs of demand, especially those suitable for restaurants. Landlords have been striving hard to lease larger vacant shops to suitable tenants. Viable options for landlords have been limited, as large-sized shops are no longer in demand by international and luxury brands with high rental affordability. Instead, landlords have resorted to partner with retailers who have innovative ideas, such as those that incorporate art elements, or online retailers. For example, Digital Art Fair, which focuses on immersive art, new media art and NFT Crypto Art, will take up the former Topshop flagship store on Queen’s Road Central in late September to conduct its first exhibition in Asia.
Given the combination of upside factors, including the increasing vaccination rate, the electronic consumption voucher scheme, and the launch of the "Come2HK" and "Return2HK" quarantine-free schemes, the retail market is expected to remain stable in the fourth quarter.