Knight Frank launches the latest Hong Kong Monthly Report. Grade-A office market activity was slow in December 2017, but there were still a few major sales and leasing transactions. Rents in Central are expected to further increase in 2018. Overall home sales volume decreased month on month in December, but the luxury sector remained robust. Mass and luxury prices are expected to increase 5% and 8% respectively in 2018. Retail sales and visitor arrivals figures remained positive, but retail rents are set to drop another 5-10% this year, with a lack of major expansion and new entry plans from retailers.
Grade-A Office
Hong Kong Island
Activity slowed with less leasing and sales transactions during the traditional holiday season last month. Grade-A office rents continued to rise in 2017, with Admiralty and Sheung Wan recording the largest growth among districts on Hong Kong Island, up 11% and 9% year on year respectively. We expect Central’s rents to rise 2-5% in 2018 with limited supply and sustained demand.
Kowloon
Following a standard year-end pattern, Kowloon’s leasing transactions slowed in December 2017, involving mainly small units in East Kowloon, with tenants being mainly professional services and sourcing companies. Kowloon Central and Kowloon West were stagnant.
Reviewing the performance in 2017, the Kowloon East market was under downward rental pressure with an influx of new supply. We expect the pressure to gradually diminish along with absorption. Rentals will stablise in the first quarter of 2018 and rebound in the second quarter.
Residential
Luxury residential sales remained active during December, the traditional season for bonus distribution. According to latest official statistics, housing prices continued to trend upward, up 1.1% month on month in November 2017, moving upward for 20 straight months.
The Fed is expected to have around three more rate hikes in 2018. Although Hong Kong is likely to follow suit, the hike is expected to be moderate, which will not have a significant impact on housing prices.
We believe the uptrend in home prices will continue in 2018 given stable economic conditions and limited housing supply. David Ji, Director and Head of Research & Consultancy, Greater China at Knight Frank, forecasts that mass residential prices could increase 5% in 2018, while luxury home prices could increase 8%.
Retail
Retail sales value increased for the ninth consecutive month, with latest official data showing growth of 7.5% year on year in November 2017. The sales value of “jewellery, watches and clocks, and valuable gifts” continued to perform well by growing 7.9% year on year.
With retail leasing activity level remaining low, due to limited expansion and new entry plans from major retailers, we expect rents of prime street shops to drop 5-10% over 2018.