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News from Knight Frank Hong Kong

New flat supply to peak and price growth slows

17 August 2017

Knight Frank launches the latest Hong Kong Monthly Report. Relocation demand for Grade-A offices remained strong, with tenants attracted by affordable new space on Hong Kong Island and in Kowloon East. Home sales plunged in July with fewer primary units launched. The retail market continued to recover. The remainder of 2017 is expected to see steady growth, with more realignments for retail stores.

Grade-A Office
Hong Kong Island
Numerous pre-lease transactions were recorded in July. Looking ahead, the upcoming office supply on Hong Kong Island will provide more options for relocation from Central. Chinese firms, however, will continue to prefer Central and will remain the key demand driver for offices in the CBD.
Most leasing transactions in Kowloon involved relatively small units of around 4,000 sq ft in July, mainly in Kowloon East and Kowloon West. 
David Ji, Director and Head of Research & Consultancy, Greater China, maintains previous view that Kowloon rents will continue to face downward pressure during the remainder of 2017. More leasing transactions will be concluded after the summer, however, before the market slows down again towards the year end.
Residential sales plunged 42.4% month on month to only 3,515 in July 2017. Primary sales fell about 60% to 952 transactions, as fewer new flats were launched. However, home prices continued to trend upwards. 
In the luxury segment, home sales worth HK$10 million or above plunged 48.6% to 710 last month. However, a number of enquires were received from Chinese Mainlanders, reflecting their continued interests in Hong Kong properties. 
On the leasing front, the market continued to see robust activity during the peak season before the start of the new school year. Some record-breaking transactions were recorded.
The US Federal Reserve decided to keep the interest rate unchanged in July and another interest-rate hike is generally not expected during the remainder of the year. David expects residential prices to grow 2-5% during the second half of 2017, led mainly by the mass sector.

Hong Kong’s retail market continued to recover and recorded positive growth for 4 months in a row, with retail sales value rising another 0.1% year on year in June 2017. Visitor arrivals during the first half of the year gained 2.4% year on year, led by a 2.3% growth in visitors from the Chinese Mainland.
Rental levels for prime street retail stores in different districts have mostly undergone adjustments. Recognising that additional capital cost is required to recruit new tenants and at the same time to avoid the risk of having empty shops for an extended period, landlords are now willing to make more adjustments during negotiations.
Following the stabilisation in overall retail sales, we expect to see more realignments for retail stores in the comings days. We believe the retail rental market is on track to bottom out in the second half of 2017.