Grade-A Office
Hong Kong Island
In May, office tenants were generally taking a cautious market view and were delaying their leasing decisions amid escalating Sino-US trade war and the recent local political tensions. With leasing momentum continuing to weaken, Grade-A office rents in Central fell slightly by 1.0% month on month. As concerns increase for economic uncertainties and rising vacancy in Central and Admiralty thanks to large decentralisation moves, rental growth in the CBD is expected to remain sluggish as both tenants and investors will remain cautious in the near term.
Kowloon
In contrast, the Grade-A office market in Kowloon was active in May, with the number of transactions soaring 65% MoM. In the first five months of 2019, half of the transactions over 20,000 sq ft were recorded in Kowloon East. Major demand was driven by shipping, logistics and electronics companies. Meanwhile, landlords are divided in terms of attitudes and strategies to alleviate the negative factors.
Residential
Following a strong rebound in Hong Kong’s residential sales in March and April, sales volume only edged up slightly in May, increasing 4.9% MoM to 8,208 units, according to the Land Registry. The latest official data shows that overall residential property prices increased 3.2% MoM in April.
Given the considerable time lag, however, the official prices did not fully reflect the latest market conditions. Owing to external uncertainties and the slowdown in local economic activity, it was reported that several banks lowered their mortgage valuations by 2–5%, especially for secondary homes in non-urban areas.
Retail
Hong Kong’s retail sales fell for the third consecutive month in April. According to government figures, retail sales in April dropped 4.5% YoY in value. The jewellery, watches and luxury goods sector continued to see weak performance, with sales value plummeting 11.4% YoY. Weak retail sales figure reflects a still-cautious consumption sentiment amid the various external uncertainties.
We expect the retail climate in the second half of the year to be largely impacted by the weak economic conditions caused by the US-China trade conflict. Locally, the current political upheaval may also have a longer-term impact on both sentiment and consumer spending. Even in the near term, Hong Kong’s retail market is expected to face considerable headwinds.