Knight Frank launches the latest Hong Kong Monthly Report. The office decentralisation on Hong Kong Island continues, while there is increasing demand on the Kowloon side for relocation to Kowloon East. The overall residential sales dropped 27% year on year (Y-o-Y) in March. Meanwhile, the luxury residential leasing market has entered the peak season. The Mainland retailers are expected to become a significant factor in retail tenancies, underpinning retail rents in the long term.
Grade-A Office
Hong Kong Island
The average rent for Central’s Grade-A office space increased 1.2% month on month (M-o-M) to around HK$157 per sq ft per month in March. Strong demand continued to put pressure on vacancy in Central, with a very low rate of 1.1% recorded in March, a fall of 0.4 percentage points M-o-M. With limited vacant office space available, some companies are willing to pay higher rent and take more time to look for an office in Central.
Kowloon
During the traditional offpeak season, the Grade-A office leasing market in Kowloon remained quiet in March. Most leasing transactions involved relocations to reduce costs. The relocation trend to Kowloon East is expected to continue as rents in the area are still comparatively low. Since new supply level in Kowloon East this year will be lower than in 2016 and 2017, rents are expected to pick up slowly in the second half of 2018.
Residential
Residential sales in March dropped 27% Y-o-Y. Over 15,000 transactions were recorded in the first quarter of 2018. According to the latest official figures, housing prices continued to trend upwards, gaining 1.6% M-o-M in March, setting a new record, as prices have risen for 23 consecutive months since April 2016.
The luxury residential leasing market entered the peak season in March. Leasing transactions are expected to further increase in April, as corporations start executing their plans in the new financial year.
Hong Kong has not followed the US interest rate hikes and is not expected to, so with plenty of hot money remaining in the market, banks in Hong Kong continue to offer attractive mortgage rates to increase their market share.
Retail
Hong Kong’s retail sales value reached HK$45.2 billion in February, an increase of 29.8% Y-o-Y due to a low base in February 2017.
Mainland visitor arrivals increased 40.2% Y-o-Y to 4.4 million in February, because of the late Chinese New Year. With closer economic integration established between Hong Kong and Mainland cities, more leading Mainland brands, especially fashion and lifestyle retailers, are expected to expand their business to Hong Kong. Seeing Hong Kong as a platform to boost their popularity in the international market, these retailers will become a significant new element in retail tenancies and underpin retail rents in the long term.