Knight Frank launches the latest Hong Kong Monthly Report. Grade-A office leasing demand remained soft in December amid weak economic conditions and the traditional offseason, but the overall market was buoyed by the professional sector. Leasing activity in Kowloon continued to slow down in December. While most industries have been largely affected by the COVID-19 pandemic, the logistics industry has remained strong and is one of the winners. In the residential market, the protracted COVID-19 epidemic is expected to weigh on the residential market, which could result in a mild downward adjustment in overall housing prices. Looking ahead, the local retail sales performance will depend mainly on how the well COVID-19 situation in the city is contained.
Grade-A Office
Hong Kong Island
Grade-A office leasing demand remained soft in December amid weak economic conditions and the traditional offseason, but the overall market was buoyed by the professional sector, particularly the finance and legal service industries, which took up space in premium buildings in the CBD area. Medical companies also expanded their footprint in the core districts.
Given the weak economic situation, some tenants gave up more office space. With the current high vacancy rate of 7.8% on Hong Kong Island, we expect some landlords to soften their approach and be more willing to negotiate.
Kowloon
Leasing activity in Kowloon continued to slow down in December. New lease transactions dropped by 20% on a monthly basis.
While most industries have been largely affected by the COVID-19 pandemic, the logistics industry has remained strong and is one of the winners. A recent notable example was the relocation of logistics giant DHL. It moved out of Megabox and took up a 91,015 sq ft space in the premium Grade A office International Trade Tower in Kwun Tong, making it the largest new lease acquisition in the market so far in 2020.
Given the approach of the traditional festive season and the continuing unstable COVID-19 situation, we expect leasing demand to remain soft and the current low-level leasing volume to last until at least Lunar New Year.
Residential
Despite the fourth wave of the COVID-19 outbreak, purchase momentum in the residential market continued in December. According to the Land Registry, 6,067 residential transactions were recorded during the month, which resulted in a total of 59,880 transactions in 2020, on par with the 59,797 transactions in 2019.
In the land sale market, developers are optimistic about the outlook of the luxury residential market despite the economic uncertainty and protracted pandemic. A significant transaction on the Peak helped bolster confidence in the market.
The leasing market turned quiet in December as the city battled the fourth wave of COVID-19. Property owners were generally more willing to provide incentives to attract tenants. Owners of mass residential units slightly lowered their asking rents, and luxury property owners were more willing to negotiate rent and lease terms.
Looking ahead, the protracted COVID-19 epidemic is expected to weigh on the residential market, which could result in a mild downward adjustment in overall housing prices.
Retail
Hong Kong’s retail market showed some signs of recovery before the fourth wave of the pandemic hit the city.
Given the lingering market uncertainty, most retailers were conservative about their business plans and took a cautious approach to procurement. To reduce upfront capital expenses, more retailers adopted unconventional real estate strategies by opting for pop-up stores and co-retailing space as opposed to traditional long leases.
Looking ahead, local retail sales performance will depend mainly on how the well COVID-19 situation in the city is contained. We expect retail sales value to hover at around HK$320 billion for full-year 2021, a level similar to that of a decade ago after the global financial crisis.