Knight Frank launches the latest Hong Kong Monthly Report. Grade-A office leasing transactions during the month were mostly dominated by cost-saving and downsizing deals. Rental levels in the CBD continued to contract amid the COVID-19 pandemic. Office leasing momentum in Kowloon remained weak in January. In the residential market, purchase sentiment rose in January, as the fourth wave of the COVID-19 outbreak slightly abated. We are optimistic about the market outlook given the mass-vaccination programme set to be launched after Chinese New Year. For the retail sector, the business environment for the brick-and-mortar retail market will remain challenging in the coming months.
Grade-A Office
Hong Kong Island
Grade-A office leasing transactions during the month were mostly dominated by cost-saving and downsizing deals. Rental levels in the CBD, such as Central and Admiralty, continued to contract amid the COVID-19 pandemic, so landlords in prime locations were more willing to offer rental discount to tenants.
Banking industry continued to review their real estate needs amid COVID-19. Under the flexible work arrangements, more banks and corporates will cut their existing permanent office space, and rely even more heavily on flexible workspace. As a result, demand for flexible and agile workspace will increase.
Kowloon
Office leasing momentum in Kowloon remained weak in January. Average monthly rents for Grade-A offices continued to shrink, reaching about HK$20 per sq ft. Leasing activity was concentrated mainly in Kowloon East, with leasing demand primarily from the manufacturing and electronics sectors. The sluggish leasing market has prompted landlords to further soften their attitude, resulted in rent reductions for most lease renewals.
With weak business sentiment, tenants will continue to take a wait-and-see approach in the coming months. We expect the subdued leasing momentum to linger in February, given the quiet market following the typical Chinese New Year pattern.
Residential
Purchase sentiment in the residential market rose, as the fourth wave of the COVID-19 outbreak slightly abated. During the month, a number of new projects were massively oversubscribed, showing strong purchase sentiment in the residential market moving into 2021.
The latest official statistics show that overall residential prices remained largely stable in December 2020, sliding merely 0.4% MoM. After experiencing mild up-and-down adjustments over the year, the overall price stayed flat to conclude the year 2020.
In January, the positive wealth effect amid the stock market rally stimulated buyers’ purchase sentiment, leading to more enquiries and unit viewings from potential buyers, most of them end-users. However, buyers remained cautious about making offers, given the economic uncertainty and poor labour market conditions.
Given the mass-vaccination programme set to be launched after Chinese New Year, we are optimistic about the market outlook, particularly the primary market, with developers’ accelerating the launch of new projects and offering attractive incentives to attract buyers.
Retail
Hong Kong’s retail market witnessed the worst performance in a decade, as the COVID-19 pandemic dampened consumer sentiment and kept tourists away.
Among all types of retail categories, luxury goods were impacted the most, with sales value plunging over 50% YoY in 2020, owing to the absence of inbound tourism.
Looking ahead, the business environment for the brick-and-mortar retail market will remain challenging in the coming months. As the government’s employment support scheme has ended, more shops and restaurants are expected to have difficulty keeping their businesses afloat. We expect retail sales to remain weak in the short term, with another wave of store closures inevitably looming. We expect the vacancy rate to continue to set new highs in Q1 this year.