Knight Frank launches the latest Hong Kong Monthly Report. Grade A offices rental growth in Central and Admiralty outperformed the other areas, recording a moderate rise of 0.4% owing to strong demand for quality space in the CBD. Residential market sentiment was strong during the month, and sales activity bounced back as the fifth wave of pandemic receded. Consumption sentiment in Hong Kong continued to improve amid the stabilising pandemic situation and the launch of the government’s consumption voucher scheme.
Grade-A Office
Hong Kong Island
Grade A offices rental growth in Central and Admiralty outperformed the other areas, recording a moderate rise of 0.4% owing to strong demand for quality space in the CBD. In May, tenants continued to take the opportunity to seek premium Grade A buildings for workplace upgrades at stabilized rent.
Some sizable companies have created strong leasing demand for co-working space for greater flexibility. Fuelled by the popularity of flexible and remote work arrangements, we expect more sizable firms to move into co-working space, making this a trend to watch in the next 12 months.
Despite bottoming-out signals in prime locations, rents in decentralised locations, such as North Point and Wong Chuk Hang, are still under pressure, with a high vacancy rate.
Kowloon
The Kowloon market saw leasing activity regain momentum as the fifth wave of Covid-19 was brought under control, supported by an increasing number of medium-sized transactions of over 10,000 sq ft in May. Kowloon East continued to be the market focus, with demand coming mainly from musical chair movement in the electronics and manufacturing sectors.
Several sizable firms reduced their office footprint and leased space in higher-quality buildings during the pandemic. As tenants continued to seek office upgrades at an affordable cost, demand for top-of-the-line office buildings remains strong. In contrast, ageing buildings are likely to face higher vacancy pressure.
Residential
Residential market sentiment was strong during the month, and sales activity bounced back as the fifth wave of pandemic receded. According to the Land Registry, 6,202 residential transactions were recorded in May, up 59.1% MoM and the highest since July 2021.
The primary market continued to heat up, with a 478.3% MoM increase to 1,492 transactions, supported mainly by brisk sales of newly launched projects in spite of US interest rate hikes.
The luxury segment, in contrast, was relatively quiet. More homebuyers were holding back their buying decisions amid the economic uncertainty, volatile stock market and concerns about interest rate hikes.
Going forward, thanks to resilient local demand, together with attractive prices offered by developers, purchase sentiment in the residential market is expected to be buoyant, in particular in the primary market.
Retail
Consumption sentiment in Hong Kong continued to improve amid the stabilising pandemic situation and the launch of the government’s consumption voucher scheme. According to the latest official statistics, total retail sales value in April increased by 11.7% YoY to HK$30.2 billion.
However, the retail sector, especially retailers that rely on inbound tourists, are still facing enormous difficulties due to visitor restrictions.
As tourists have disappeared for some time, retail landlords have taken active steps to transform and survive.
In view of the severely restricted tourism and the growth of online shopping platforms during the pandemic, we expect retailers to remain conservative and avoid shop expansion for the time being.