Knight Frank launches the latest Hong Kong Monthly Report. In the office market, leasing momentum in Hong Kong returned in March amid the stabilising pandemic situation, with the high activity level supported mainly by small transactions. In Kowloon, with the gradual return to the office, more tenants resumed their delayed real estate decisions, leading to a rebound in activity levels in March. In the residential market, the overall residential market remained quiet in March, but purchasing momentum in the secondary market gradually picked up, given the easing of the local pandemic outbreak, narrowing the monthly decline towards the end of March. In the retail market, the implementation of a new round of the consumption voucher scheme and the easing of social-distancing restrictions could prompt local consumption and boost foot traffic and sales, offering some support to the retail sector.

Grade-A Office                                                                                                    

Hong Kong Island

Leasing momentum returned in March amid the stabilising pandemic situation, with the high activity level supported mainly by small transactions of below 6,000 sq ft. The top-performing sectors, such as finance and legal, continued to expand their footprint in Central.

Although several Grade-A office buildings in Central still recorded a double-digit vacancy rate at the end of March, the vacancy rate in overall Central sustained a stable rate of 7.2%, which has outperformed the non-CBD areas. 

Kowloon

With the gradual return to the office, more tenants resumed their delayed real estate decisions, leading to a rebound in activity levels in March.

Strong activity in the leasing market was supported mainly by sizable new letting transactions, as tenants took the opportunity to consolidate their various offices and relocate to new buildings at affordable cost.

We expect rents in Kowloon to maintain the bottoming-out trend in the coming quarters, and tick up slightly in the last quarter of the year, therefore the market will experience an overall increase of 1-3% by the end of 2022.

Residential

The overall residential market remained quiet in March, but purchasing momentum in the secondary market gradually picked up, given the easing of the local pandemic outbreak, narrowing the monthly decline towards the end of March.

In the sales market, both potential buyers and homeowners were cautious about their sale decisions. In the buyer’s market, more homeowners were willing to provide wider room for price negotiation to potential buyers.

Following the Fed’s move, the Hong Kong Monetary Authority (HKMA) raised the base lending rate by 25 basis points to 0.75%. However, we do not expect local Hong Kong commercial banks to follow the pace and frequency of future Fed rate hikes. Therefore, we believe the current interest rate rise will not erode the overall purchasing power in the market and will not put immediate and significant pressure on Hong Kong’s property prices in the near term. 

Retail

Hong Kong’s retail market witnessed weak performance in the face of the fifth wave of COVID-19 infections. The rapidly worsening new COVID wave and further tightening of anti-pandemic measures led to a severe drop in footfall and dampened consumer sentiment. Online sales remained robust, however, totalling HK$2.7 billion in February, representing 10.8% of total retail sales value for the month. This was 50% higher than in the same period last year, implying that consumers are increasingly opting for online purchases. 

The implementation of a new round of the consumption voucher scheme and the easing of social-distancing restrictions could prompt local consumption and boost foot traffic and sales, offering some support to the retail sector. Some retailers and F&B operators feel slightly optimistic about the business outlook, but in general, their rental affordability continued to fall, as the fifth wave of COVID has taken a heavy toll on them. Depending on the future pandemic situation, we expect a stronger rebound in the second half of the year.  

Furthermore, with the current Omicron outbreak in the Chinese Mainland and the reopening of the border between Hong Kong and the Mainland being put on hold, the retail market is expected to fully revive only when the border is reopened.