Knight Frank launches the latest Hong Kong Monthly Report. Buoyed by increasing demand for premium buildings in the CBD amid attractive rental levels, the vacancy rate in Central dropped for the sixth consecutive month to 7.4% in November. Most of the leasing activity in Kowloon was dominated by renewal cases for small and medium enterprises. In the residential market, market sentiment was positive amid a vibrant market in November, with both primary and secondary sales recording an uptick in transaction volume. Hong Kong’s retail market has been further underpinned by the local economic recovery, we expect a stable trend in overall retail rents.
Grade-A Office
Hong Kong Island
Buoyed by increasing demand for premium buildings in the CBD amid attractive rental levels, the vacancy rate in Central dropped for the sixth consecutive month to 7.4% in November.
Contrary to the common perception that the pandemic-induced work-from-home arrangements would reduce demand for office space, our global (Y)our Space Report revealed that about 70% of Hong Kong-headquartered enterprises plan to increase their office space in the next three years. The findings show that office space remains widely recognized as an important element for Hong Kong enterprises even during the pandemic.
Stepping into 2022, buttressed by the “recentralization” trend, we expect Grade A office rents on Hong Kong Island to go up by 5% to 10% in 2022, especially in the CBD.
Kowloon
As tenants are still taking a wait-and-see approach to their real estate plans at the end of the year, leasing demand was weak during the month. Most of the leasing activity was dominated by renewal cases for small and medium enterprises.
Because of the weak momentum, there were fewer new lettings of over 10,000 sq ft recorded in November. A few rent review cases and small-scale expansion cases supported the leasing market.
Looking ahead, despite hopes for a faster recovery after the reopening of border, the abundant new supply of office space in Kowloon has limited our forecast to a minor uptick of 0% to 2% in overall Kowloon office rents in 2022, which is on a par with the annual inflation rate.
Residential
Market sentiment was positive amid a vibrant market in November, with both primary and secondary sales recording an uptick in transaction volume. According to the Land Registry, 5,409 residential units were sold in November, up 16.5% MoM.
Primary sales continued to be robust, rising 45.6% MoM to 1,854 units. There were also some notable transactions in the luxury market during the month.
With more new projects launches and various finance schemes offered by developers, more purchasing power in the secondary market is expected to shift to the primary market, so we expect the transaction volume ratio of first-hand to second-hand homes to be about 30:70 in 2022, and total residential transaction volume to be about 60,000 to 65,000 units next year.
Retail
Hong Kong’s retail market has been further underpinned by the local economic recovery. Hong Kong's retail sales climbed for the ninth straight month in October, increasing by 12.0% YoY to HK$30.7 billion, according to the latest official statistics. The sales value of luxury goods totalled HK$31.8 billion for January to October 2021, rising by 29.2% from the same period last year, indicating that the luxury segment has rebounded from the trough in 2020.
Meanwhile, the local e-commerce market has continued to grow. Online retail sales soared 41.7% in the first 10 months of the year compared with the same period in 2020. The pandemic has accelerated the rapid development of e-commerce, leading to the increasing adoption of omni-channel retailing.
Following the gradual recovery of the retail market, we expect a stable trend in overall retail rents. Retail sales performance in the first quarter in 2022 will hinge on the local epidemic situation, as well as the timing of the reopening of the border.