Knight Frank launches the latest Hong Kong Monthly Report. Hong Kong’s GDP grew 2.5% during the first three quarters of 2015 and the finance companies remained the key driver in the Grade-A office market. Meanwhile, the government restated the continual implementation of cooling measures, despite expectation for an interest-rate hike in the US in December. Home prices are set to drop slightly in 2016. In the retail sector, more luxury brands offered discounts to boost demand. High-end retailers are expected to remain cautious and prime street rents to drop further next year.
Office
In November, the highlights of Hong Kong’s office market were two mega en-bloc sales involving mainland firms. With ample liquidity, Mainland firms have been actively seeking opportunities to acquire whole-block office building for both owner-occupation and long-term investment purposes. With their further expansion, Knight Frank expects this trend to continue next year.
Given extremely low vacancy rates, David Ji, Director, Head of Research & Consultancy, Greater China at Knight Frank expects Grade-A office rents in core business districts to increase 5% in the coming year, while those in non-core areas could drop 5%.
Residential
While the government’s cooling measures are still in place, a potential US interest-rate hike and abundant housing supply in the pipeline have prompted potential buyers to adopt a wait-and-see approach. This has led to subdued sales in recent months. We expect the total sales for 2015 to reach around 55,000, down 13.8% from 2014. Mass home prices are expected to decrease 5-10% next year, while luxury residential prices could drop 0-5%.
Retail
Hong Kong’s visitor arrivals registered negative year-on-year growth for five consecutive months from June to October, but the pace of decline slowed to a mild -2.7% in October.
Leasing activity in prime retail areas slightly improved in November with softening rents. Meanwhile, some landlords in second-tier streets are offering short-term leases of about six months to entice demand associated with Christmas and Lunar New Year holiday sales.
Looking ahead, the challenging retail environment is likely to persist next year due to weaker inbound tourism. Prime street shop rents are expected to see another 10-15% decline next year, while rents of prime shopping malls could rise 2-3% due to limited supply.