Knight Frank launches the latest Hong Kong Monthly Report. In the office market, affected by the fifth wave of epidemic and stringent social-distancing rules, some tenants were forced to delay leasing activity during the month. The Kowloon office leasing market weakened further in February, with a significant drop of new leases during Chinese New Year. Hong Kong’s residential market was quiet in February amid the escalating fifth wave of COVID and uncertain global economic conditions, leading to a significant drop in transaction levels. In the retail market, Total retail sales value in January recorded an uptick of 4.1% YoY to HK$33.9 billion. However, the figure did not fully reflect the impact of the further tightening of anti-epidemic measures during the current pandemic outbreak.
Grade-A Office
Hong Kong Island
Affected by the fifth wave of epidemic and stringent social-distancing rules, some tenants were forced to delay leasing activity during the month. However, demand for premium Grade-A buildings, especially in the Central, remained strong. Several Chinese mainland enterprises and large corporates in the finance and legal sectors are considering expanding their footprint in premium buildings.
Supported by resilient demand for premium buildings in core areas, we expect buoyant take-up and rental levels in the CBD in the near term and the activity level to rebound quickly once the social-distancing rules are relaxed.
Kowloon
The Kowloon office leasing market weakened further in February, with a significant drop of new leases during Chinese New Year. During the month, most of the leasing activity was in Kowloon East and Kowloon West.
Under the tightened social-distancing rules, many on-site inspections were cancelled. Tenants generally preferred short-term renewals or restructuring instead of relocation.
Compared to the Hong Kong Island office market, a vast number of tenants in Kowloon are in cost-sensitive industries, such as sourcing and manufacturing. With mounting economic uncertainty, companies from these industries are likely to slow down their leasing decisions in the near term. Hence, we expect Kowloon’s leasing market to cool down and rents to undergo a mild downward adjustment in the coming months, with the exception of some occasional transactions that started in 2021.
Residential
Hong Kong’s residential market was quiet in February amid the escalating fifth wave of COVID and uncertain global economic conditions, leading to a significant drop in transaction levels.
Primary sales dropped 55.5% MoM, as developers suspended new launches. In the mass market, the current challenging local economy dented market sentiment, with secondary sales dropping 23.9% MoM in February, as both potential buyers and sellers adopted a cautious attitude.
The luxury segment, in contrast, has proven resilient despite the economic uncertainty and sharp correction in the local stock market. During the month, a handful of notable transactions were recorded.
Going forward, the protracted COVID-19 epidemic is expected to weigh on the residential market, and overall home prices will remain under pressure, at least in the near term.
Retail
Total retail sales value in January recorded an uptick of 4.1% YoY to HK$33.9 billion. However, the figure did not fully reflect the impact of the further tightening of anti-epidemic measures during the current pandemic outbreak, as the increase in sales was mainly due to the low base in the same period last year.
In the latest Budget, the government announced the upcoming disbursement of HK$10,000 in consumption vouchers to over 6.3 million residents. Based on the previous experience, people will use the consumption vouchers mainly for daily necessities rather than on discretionary spending.
The recent announcement of the proposed “rent enforcement moratorium” in the 2022/23 Budget on rental deferment for tenants in specific sectors has triggered considerable debate. In fact, some retailers and landlords have been negotiating rental relief measures on their own amid the poor market environment. We believe that this would better suit the situation of each individual leasing deal and maintain the city’s non-intervention market principle.
Looking ahead, we expect to see a glimmer of hope on the horizon as the pandemic outbreak is expected to peak in March and then to gradually cool down in a few months, given the current pandemic development trend. Consumer sentiment is set to rebound, and the retail market is expected to regain momentum when the impact of the fifth wave recedes in the coming months.