Knight Frank launches the latest Hong Kong Monthly Report. The Grade-A office market continues to polarise, with Mainland Chinese firms remaining the pillar of leasing demand and some multinational corporations downsizing. Residential sales in the first month of 2016 hit a 25-year low, with the market anticipating an increase in supply and rising mortgage rates to cause a fall in prices. For retail, this year is set to be another difficult year, with diminishing tourist numbers and spending.
Office
The polarisation in the Grade-A office leasing market has grown more apparent with demand continued to be driven by Mainland Chinese firms.
Looking ahead, although the Grade-A office market is likely to continue outperforming other property sectors, the increasing challenges facing the Hong Kong and Mainland economies could add uncertainty to the sustainability of office demand. David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank, expects office rents in core business areas, which have already been at high levels, to remain largely stable in 2016.
Residential
According to the Land Registry, only 2,045 residential sales transactions were recorded in the first month of 2016, following the US interest-rate rise in December 2015. Volume plunged 68.1% year on year, hitting the lowest monthly level in 25 years.
In December 2015, mass residential prices still increased 2.7% from December 2014, while luxury residential prices dropped only around 1%. Home prices are expected to decrease further this year, with mass residential prices dropping 5-10% and luxury home prices falling up to 5%, amid the US interest-rate hike and the projected increase in residential supply.
Retail
Hong Kong’s retail market saw further deterioration before the Lunar New Year, amid a double-digit decline in visitor arrivals and weaker growth prospects in the local and Mainland economies.
Looking ahead, the retail market will remain challenging in 2016 as the appreciation of the Hong Kong dollar against the RMB and other major Asian currencies, such as the Japanese yen, could further reduce Hong Kong’s attractiveness to visitors.
We expect to see more big-ticket retail property sales transactions in 2016 as some developers and corporations offload part of their retail properties to deleverage their balance sheets in anticipation of future interest-rate rises.