According to the latest report released by Knight Frank, despite the 2014 Policy Address highlighting the government’s aims to increase residential and commercial property supply, Knight Frank expects such supply to remain tight in the short to medium term. How the government establishes and accelerates the implementation timeline and whether it will be able to maintain the momentum of enforcement will be the determining factors of success.

The traditional January holiday season saw relatively low activity in the Grade-A office and residential sectors, while the retail market was robust with duplex shops continuing to be sought after.

Residential

The announcement of the 2014 Policy Address did not activate the residential market and sentiment among property buyers remained low. Price-cutting deals were observed in the secondary markets, especially for small to medium-sized units, which are expected to be more affected by an increase in Home Ownership Scheme (HOS) supply.

Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank, says, “In 2014, a pipeline of new projects, including The Golden Gate in Tai Po and The Riva in Yuen Long, are expected to heat the market again and home seekers are expected to return to the table when major new projects are launched for pre-sale.”

Prime Office

In January, the Grade-A office leasing market was relatively quiet. The average Grade-A office rent grew 0.6%, the first trend upwards in the past five months. Meanwhile, all major Grade-A office districts experienced slight drops in prices, led by Central where prices decreased 1.6% month on month.

Although the 2014 Policy Address proposed an increase in land supply for commercial and business uses in Central and Wan Chai through land sales, Thomas says in the short to medium term, office supply on Hong Kong Island is set to remain tight, while Kowloon East—with the completion of the Kai Tak development, is set to receive a boost in office supply. He expects Grade-A office rents and prices to remain stable or record slight drops in 2014.

Retail

In 2013, the total number of inbound tourist arrivals reached over 54 million, of which over 40 million were Mainlanders. The number of Mainland tourist arrivals increased 16.7% year on year, a faster growth rate than the 11.7% growth rate in overall tourist arrival numbers. Duplex retail space continued to be sought after in January. In the retail property sales market, some major transactions were witnessed in both core and non-core retail districts in January, indicating the return of veteran investors to the market.

Thomas says, “For the coming year, we maintain our forecast that retail rents in prime streets will remain stable, supported by increasing tourist arrivals and limited supply. We also expect to see improvement in the retail property investment market in 2014. Prices of prime street shops should remain stable or experience slight drops in 2014.”