Knight Frank launches the latest Hong Kong Monthly Report. In the office market, Central outperformed other areas in activity level and maintained a low vacancy rate for premium office space. The Kowloon Grade A office market demonstrated much stronger momentum in April. In the residential market, both the primary and secondary market recorded an uptick in volume and consideration. In the retail market, since retail headwinds continue to linger, we expect the retail market to take considerable time to recover. Shop rentals will remain supressed with a growing number of surrender cases.
Grade-A Office
Hong Kong Island
Leasing momentum on Hong Kong Island continued to gather pace amid the easing of the fifth wave of COVID outbreak.
Central outperformed other areas in activity level and maintained a low vacancy rate for premium office space. Some multinational corporations (MNCs), especially those in the financial industry, have been actively seeking space in sought-after Grade A buildings in Central for upgrade and expansion amid stabilized rents.
Going forward, we expect the ‘flight-for-quality’ trend to grow as companies, in particular those involved in the financial markets, see the benefits of being part of the CBD ecosystem.
Kowloon
The Kowloon Grade A office market demonstrated much stronger momentum in April. More on-site inspections were recorded as the fifth wave of the pandemic subsided. With improved business sentiment, there were more sizable new letting cases of over 10,000 sq ft in the market.
With the fifth wave of the pandemic under control, we expect tenants to continue to take a wait-and-see approach and rents to remain stable in the coming three to six months. Only if the borders are reopened and more favourable indicators are displayed will business confidence be further strengthened, and the leasing market rebound in the last quarter of the year.
Residential
With the fifth wave of the pandemic under control and supported by pent-up local demand, the residential market regained momentum. Both the primary and secondary market recorded an uptick in volume and consideration.
Newly launched projects drew keen interest from homebuyers, as indicated by the massive oversubscription of new projects. The luxury sales market has demonstrated resilience. Home viewing activity persisted, but more tenants adopted a wait-and-see approach or tended to renew their existing home because of cost concerns.
Despite Hong Kong’s direction into an interest rate hike cycle, in the near term, the overall residential market will continue to be supported by pent-up local demand and the banks’ support of low mortgage rates. With the pandemic easing, potential home buyers are optimistic about the market outlook, and transaction volume is expected to pick up, in particular in the primary market.
Retail
Hong Kong’s retail market remained in the doldrums amid the fifth wave of COVID-19. With the disbursement of the first batch of electronic consumption vouchers in early April, retailers reflected that sales performance was the strongest in the first week of April, but sales gradually weakened in the following weeks.
The F&B sector has faced huge pressure under the stringent social-distancing measures. There was an upsurge in the surrender of shop units by food operators, as many restaurants had been struggling to stay afloat, and some failed to survive. Owing to the absence of tourists, businesses are now locally driven. Embracing more F&B tenants in prime streets is a quick-win solution for landlords to improve cash flow at the moment, while the new tenants are not paying high unit rents.
Since retail headwinds continue to linger, owing to the volatile stock market, delays in border reopening, and concern about the emergence of a sixth wave of infections, we expect the retail market to take considerable time to recover. Shop rentals will remain supressed with a growing number of surrender cases.