Knight Frank launches the latest Hong Kong Monthly Report. Despite the historically high rents, Chinese financial institutions still favour premium offices in Central. On the Kowloon side, Kowloon East is a popular location for office consolidation. Residential sales surged 56% month on month in April. Home prices continued to hit new highs, led by the mass market segment. Pre-letting activity in retail shops reflects improved market confidence in the retail outlook.
Grade-A Office
Hong Kong Island
The leasing demand in Central was robust during the month, driven mainly by the banking and finance sector. A very low vacancy rate of 1.0% was recorded in April. Despite the historically high rents, Chinese financial institutions still favour premium offices in Central. With strong leasing demand, we expect office rents on Hong Kong Island to continue their upward trend for 2018.
Kowloon
Office leasing activity in Kowloon East was active in April, driven by the electronics and sourcing sectors. Kowloon East appears to be a preferred location for office consolidation, as there are a number of new buildings offering large floor plates for relatively low rents.
Sustainable leasing demand in Kowloon East is making a case for a turnaround in rents, which are expected to rise 0-2% in 2018.
Residential
Residential sales in April surged 56% month on month to 6,646, the first month since June 2017 that recorded over 6,000 transactions. Meanwhile, secondary residential transactions continued to increase, resulting in a 2:8 ratio between primary and secondary sales in the first four months of 2018.
Led by the mass residential segment, housing prices continued to hit new highs, with the latest official data in March up 20.4% from the previous peak. Meanwhile, the luxury residential sales market saw active Mainland buyers, who eyed prestigious primary luxury properties.
With limited signs of the residential market cooling down in the short term, we expect mass residential prices to rise 8-12% in 2018.
Retail
The street shop leasing market in April was more active than in the previous month, with more transactions recorded in core areas. Apart from core areas, a series of street shop leasing transactions were recorded in non-core areas like Sheung Shui.
Pre-letting activity in retail shops reflects improved market confidence in the retail outlook. Some retailers are starting to figure out a balance between online sales and physical retail shops to expand their business.
Major shopping centres recorded a 7-10% boost in sales performance, as shown in developers’ 2017 financial results. The Retail Management Association expects retail sales for the whole year to surpass the record of HK$494 billion in 2013.
Amid improved retail prospects, rents are starting to pick up, with vacant shops in prime streets expected to be taken up gradually in the second quarter of 2018.