Research

December 2013

Hong Kong Monthly

REVIEW AND COMMENTARY ON 'S PROPERTY MARKET

Office

Prices dip across all major business districts

Residential Sweeteners continue to boost primary sales Retail Retail rental environment remains stable1 December 2013 Hong Kong Monthly

Market in brief

The following table and figures present a selection of key trends in Hong Kong’s economy and property markets.

Table 1 Economic indicators and forecasts Latest 2013 Economic indicator Period 2011 2012 reading forecast GDP growth Q3 2013 +2.9% +4.9% +1.4% +3.0%

Inflation rate Oct 2013 +4.3% +5.3% +4.1% +4.4%

Aug 2013– Unemployment 3.3%# 3.4% 3.1% 3.2% Oct 2013

Prime lending rate Current 5.00–5.25% 5.0%* 5.0%* 5.0%*

Source: EIU CountryData / Census & Statistics Department / Knight Frank # Provisional * HSBC prime lending rate

Figure 1 Figure 2 Figure 3 Grade-A office prices and rents Luxury residential prices and rents Retail property prices and rents

Jan 2007 = 100 Jan 2007 = 100 Jan 2007 = 100

250 190 350

230 170 300 210

190 150 250 170 130 150 200 110 130 150 110 90 90 100 70 70

50 50 50 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013

Price index Rental index Price index Rental index Price index Rental index

Source: Knight Frank Source: Knight Frank Source: Rating and Valuation Department / Knight Frank Note: Provisional figures from Apr to Sep 2013

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Monthly review

In November, the primary residential market remained the most active among Hong Kong’s property sectors. Grade-A office sales remained sluggish, while the Grade-A office leasing market remained stable. In the retail sector, a number of retailers were still expanding in major shopping districts. In 2014, we expect both home rents and prices to edge down. In Grade-A office the Grade-A office market, core business areas will see both rents and prices drop, but those in decentralised business areas rents in Central will remain stable. Shop rents on prime streets will remain will stabilise or stable, but their prices could drop slightly. drop slightly, “ while those in Prime office Hoi Bun Road in Kwun Tong received decentralised its Occupation Permit from the business areas will With the impact of the government’s Buildings Department in September cooling measures lingering, Grade-A and another at 1 Sheung Yuet Road remain stable in in Bay became available for offices sales remained sluggish and 2014. prices across all districts experienced preleasing. With a lack of new slight drops in November. Reportedly, Grade-A office supply in traditional a 3,290-sq-ft mid-floor unit at Nine business districts, both buildings are Queen’s Road Central in Central sold expected to attract healthy attention for HK$29,000 per sq ft—the third from corporate tenants. highest per-sq-ft price ever recorded for a Grade-A office in Hong Kong. In 2014, the volume of Grade-A ” office sales is expected to remain low, Leasing activity remained stable, with as long as the government continues a number of firms requiring to implement cooling measures. medium-sized office space. With However, the investment market may more corporate firms pursuing start to defrost as investors absorb cost-saving initiatives, tenants the impact of the tightening policies started to negotiate rent renewals and capital accumulates. Grade-A early before their leases expired. office prices are set to remain stable Notable transactions last month or experience modest drops next involved British American Tobacco year. Hong Kong, which took up the entire The leasing market is expected to see 28th floor of DCH Commercial Centre in Quarry Bay and Japanese sustained demand under a stable finance firm Marubeni Asian Power, economic environment in 2014. We expect luxury Grade-A office rents in Central will which leased a 25,062-sq-ft floor in stabilise or drop slightly, while those home prices to The Gateway Tower 6 in , in decentralised business areas reportedly. drop 5–10% in should remain stable.

2014, while mass On the supply side, some landlords “ subdivided large office spaces into residential prices smaller units in the hopes of attracting higher rents per sq ft, could fall 10–15%. further reducing the already tight availability of large office space in core business districts. Meanwhile, a new over-300,000-sq-ft office at 181 ” 3

December 2013 Hong Kong Monthly

Residential buying power in the market, shifting brand Penhaligon’s opened its first demand away from the secondary flagship store in ifc mall in Central, market. Secondary home prices fell after the success of its pop-up store Despite the continuing cooling effect and we expect them to continue in in Tsim Sha Tsui. brought about by the government’s dipping with more owners becoming Meanwhile, Japanese home store regulatory policies, interest in deluxe willing to soften their asking prices. Francfranc opened a flagship store in houses remained strong due to their Fashion Walk in Causeway, its scarcity, with Hutchison Whampoa With the government retaining a firm seventh branch in Hong Kong. The (0013.HK) selling two premium stance on its cooling policies and two-storey shop covers a floor area houses at 28 Barker Road on the Peak more new homes being released next of 7,800 sq ft and houses a special last month. A 6,863-sq-ft house was year, we expect luxury home prices to tea bar. sold for HK$740 million or drop 5–10% in 2014, while mass HK$107,825 per sq ft, making it the residential prices could fall 10–15%. In the retail-property sales sector, city’s third most expensive house. The transaction volume of residential only 3,438 transactions were One week later, a 5,706-sq-ft house properties is expected to be 10–20% recorded during the first ten months with two car-parking spaces in the lower in 2014 compared with 2013. of the year—a drop of 28.8% year on same development was sold for year—mainly due to the impact of HK$94,286 per sq ft. Retail the government’s stamp duty policies. Their total consideration These notable transactions also fell 39.6% year on year to encouraged other developers to In October, robust consumption HK$39.8 billion, reflecting the launch their luxury projects, in a bid during the National Day golden decreased average price of retail to capture the improved sentiment week boosted Hong Kong’s retail properties during the period. among buyers of high-end residential sales value to HK$37.8 billion, a rise properties. Swire Properties (1972.HK) of 6.3% year on year. Although the Looking forward, we expect rents of put up a 5,409-sq-ft unit at Opus in retail sales volume of ‘jewellery, prime-street shops to remain stable Mid-Levels East for public watches and valuable gifts’ rose in the coming year, due to the tender—the first home launched 16.8%, the retail sales value of this softened retail sales growth, while through public tender since the category climbed 10.7% year on year, rents in prime shopping centres enforcement of the Residential indicating that lower priced items should see a moderate increase of Properties (First Hand Sales) were purchased. up to 5%. Non-core shopping Ordinance in April this year. centres near the border and along Meanwhile, Henderson (0012.HK) was In the leasing market, several major the MTR line will continue to attract also preparing to release luxury transactions were recorded in prime attention from same-day Mainland homes at 39 Conduit Road in retail districts, demonstrating that visitors, hence their rents are Mid-Levels West. quality retail space in core retail expected to rise another 5% in 2014. areas were still sought after. The In order to meet sales targets and 1st–2nd floors of Mongkok Plaza in Prime-street shop prices are trim stock accumulation, developers , totaling 6,700 sq ft, were expected to remain stable or drop adopted aggressive sales strategies to reportedly preleased for around slightly in the coming year, as the boost sales. Of particular note, Sino HK$1.2 million or HK$182 per sq ft government’s property-market Land (0083.HK) and Hopewell per month. Meanwhile, a cooling measures are anticipated to Holdings (0054.HK) launched their ground-floor unit in Mirador continue. However, investment joint residential project, The Avenue Mansion in Tsim Sha Tsui, with a activity could start to defrost in 2014 in Wan Chai, with a 17.5% discount floor area of 1,800 sq ft, was as investors absorb the impact of the incentive package. The developers reportedly leased for HK1.2 million cooling measures and capital claimed that the discounted prices for or HK$667 per sq ft per month. accumulates. the first batch of properties launched were 20% lower than those in the Despite slowing growth of local retail vicinity. Meanwhile, Nan Fung sales in recent months, some Development (3377.HK) offered international retailers were still discounts of up to 22% on the launch We expect rents of seeking to enter or expand their of its first batch of 318 units at The footprint in Hong Kong—especially prime-street shops Visionary in Tung Chung. in prime shopping centres—thanks to remain stable in to the stable local economy and the New projects launched at discounted further growth of inbound tourism. the coming year. prices absorbed a large portion of “ For instance, the British perfume

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PRIME OFFICE

Table 2 Selected office sales transactions

Floor area Price Price District Building Floor unit An office in Nine Queen’s (sq ft) (HK$M) (HK$ psf)

Road Central was sold at the Nine Queen’s Central Mid floor unit 3,290 $95.41 $29,000 third highest per-sq-ft price Road Central Admiralty ever recorded in Hong Kong. Admiralty Low floor unit 1,467 $25 $17,042 Centre

Concordia Tsim Sha Tsui Low floor unit 1,751 $21.88 $12,496 Plaza

Lippo Sun Tsim Sha Tsui Mid floor unit 3,275 $43.23 $13,200 Plaza

Source: market news Note: All transactions are subject to confirmation.

Table 3 Selected office leasing transactions The office leasing market District Building Tower / floor Floor area (sq ft) recorded stable activity in November, with a number Admiralty United Centre Mid floor 20,489 (G) Two International Finance of whole-floor transactions Central Mid floor 24,150 (L) Centre concluded. Causeway Bay World Trade Centre High floor 12,770 (G)

Quarry Bay DCH Commercial Centre High floor 10,949 (L)

Tsim Sha Tsui The Gateway Tower 6 / high floor 25,062 (G)

Source: Knight Frank Note: All transactions are subject to confirmation.

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Table 4 Month-on-month movement of Grade-A office rents (Nov 2013)

Grade-A office rents Central / Wan Chai / Quarry Bay Tsim Sha Tsui Kowloon East remained stable in most Admiralty Causeway Bay major business districts

last month.

Table 5 Prime office market indicators (Nov 2013) Grade-A office prices Net effective Change Price Change experienced slight rent drops in all major HK$psf From From From From From From District HK$ psf business districts in /mth Oct 13 Aug 13 Nov 12 Oct 13 Aug 13 Nov 12 Premium November. 141.1 0.3% -1.6% 2.4% n/a n/a n/a n/a Central

Traditional 103.1 -0.5% -2.3% -1.3% 26,520 0.0% -1.6% -2.7% Central

Admiralty 79.5 -2.4% -2.9% -2.2% 21,690 -1.2% -3.4% -0.2%

Sheung 61.3 -0.7% -1.3% 3.4% 19,526 -2.1% -4.5% -3.6% Wan

Wan Chai 61.5 0.5% 0.5% -1.2% 18,121 -0.4% -0.8% 3.2%

Causeway 63.6 -1.2% -1.9% -3.0% 17,317 -0.7% -1.8% -0.6% Bay

North Point 44.7 -0.5% 3.5% 16.6% n/a n/a n/a n/a

Quarry Bay 50.5 -0.1% 1.3% 7.0% n/a n/a n/a n/a

Tsim Sha 52.1 0.1% -3.5% -0.7% 11,859 -1.0% -2.0% -1.3% Tsui

Cheung Sha 30.3 -2.9% 0.3% 22.6% n/a n/a n/a n/a Wan

Hung Hom 38.0 0.9% 2.8% 12.2% n/a n/a n/a n/a

Kowloon 38.3 0.4% -4.3% 7.6% n/a n/a n/a n/a East

Mong Kok/ 50.9 2.0% 1.3% 3.0% n/a n/a n/a n/a

Source: Knight Frank Rents and prices are subject to revision.

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Residential

Table 6 Selected residential sales transactions

A number of high-price Salable area Price Price District Building Floor / unit luxury residential sales (sq ft) (HK$M) (HK$ psf) transactions were recorded The Peak 28 Barker Road House 6,863 $740 $107,825 in the primary market last The Peak 28 Barker Road House 5,706 $538 $94,287 month. Mid-Levels Azura High floor unit 1,296 $47.1 $36,343 West Causeway yoo RESIDENCE High floor unit 355 $12.0 $33,803 Bay

Mid-Levels Argenta High floor unit 2,182 $70.9 $32,493 West Source: Economic Property Research Centre Note: All transactions are subject to confirmation.

Table 7 Selected residential leasing transactions

A few luxury houses were Salable Monthly Monthly rent District Building Floor / unit leased in Island South and area (sq ft) rent (HK$) (HK$ psf) on the Peak last month. Island South 39 Deep Water Bay House 3,711 $250,000 $67.4 Road Grenville Low floor Mid-Levels 3,349 $165,000 $49.3 House unit

The Peak La Hacienda House 2,756 $140,000 $50.8

High floor Mid-Levels Dynasty Court 2,141 $108,000 $50.4 unit Source: Knight Frank Note: All transactions are subject to confirmation.

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Table 8 Month-on-month movement of luxury residential rents (Nov 2013) Jardine’s Lookout Luxury residential rents Peak Island South Mid-Levels Pokfulam / Happy Valley dropped in the four major districts in November 2013.

Table 9 Luxury residential market indicators (Nov 2013) Luxury residential prices Net effective Change Price Change remained stable last rent month. HK$psf/ From From From From From From District HK$psf mth Oct 13 Aug 13 Oct 12 Oct 13 Aug 13 Oct 12

The Peak $52.7 -2.2% -3.4% -10.2% $22,919 0.0% 0.0% -3.1%

Mid- $40.9 -0.1% -1.3% -4.0% $21,461 -0.1% -1.1% 0.0% Levels

Pokfulam $30.7 -0.8% -2.0% 1.0% $18,620 0.0% -3.5% -0.3%

Jardine’s Lookout $37.1 -1.1% -3.6% -7.5% $19,799 -0.3% -2.3% 0.3% & Happy Valley

Island $41.6 0.0% -0.7% -2.1% $24,910 0.0% 0.5% -3.6% South Source: Knight Frank Rents and prices are subject to revision.

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Retail

Table 10 Selected retail sales transactions

Saleable In November, Causeway Price Price District Building Floor / unit floor area (HK$M) (HK$ psf) Bay and Mong Kok (sq ft) witnessed several major Ho King Ground floor Mong Kok Commercial 115 $27 $234,783 retail property sales unit Centre transactions. First floor Mong Kok Sincere Plaza 68 $8.28 $121,765 unit Hang Tat Ground floor 583 Wan Chai $65 $111,492 Mansion unit (gross) Ground floor Causeway Bay Percival House 113 $12.5 $110,619 unit

Hennessy Road Causeway Bay Ground floor NA $380 N/A 521

Source: Economic Property Research Centre Note: All transactions are subject to confirmation.

Table 11 Selected retail leasing transactions

City Landmark in Tsuen Monthly Monthly Net floor District Building Floor / unit rent rent area (sq ft) Wan recorded several (HK$) (HK$ psf)

major retail property Tsim Sha Ground floor Friends’ House 228 $100,000 $438.6 leasing transactions in Tsui unit November. Tsuen Wan City Landmark 2nd floor unit 57 $25,000 $438.6

Park View Ground floor North Point 110 $41,000 $372.73 Mansion unit

Ground floor Tsuen Wan City Landmark 969 $293,265 $302.7 unit

Ground floor Mong Kok Allied Plaza 179 $50,000 $279.3 unit Source: Economic Property Research Centre Note: All transactions are subject to confirmation.

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Table 12 Month-on-month movement of prime street shop rents (Nov 2013) Rents of prime-street shops Central Causeway Bay Tsim Sha Tsui Mong Kok in the four core retail districts remained stable in November.

Table 13 Retail sales by outlet type (Oct 2013)

Robust consumption Value Share of total Change From From From during the Golden Week Outlet (HK$ billion) % holiday lifted Hong Sep 13 Jul 13 Oct 12 Kong’s retail sales value Jewellery, watches and clocks and $8.3 22.1% 10.5% -17.4% 10.7% to HK$37.8 billion in valuable gifts

October, a rise of 6.3% Clothing, footwear $5.1 13.4% 24.7% -3.0% 7.2% year on year. and allied products Department stores $3.9 10.2% 0.8% -4.9% 12.5%

Fuel $0.8 2.2% -2.9% -0.9% -3.1%

Food, alcoholic drinks and tobacco $3.2 8.4% -13.9% 25.6% 5.4% (excluding supermarkets)

Consumer durable $5.7 15.2% -2.6% -4.8% -5.7% goods

Supermarkets $4.2 11.0% -1.5% 1.1% 8.6%

Others $6.6 17.5% 15.1% -6.5% 9.0%

All retail outlets $37.8 100.0% 5.4% -5.5% 6.3%

Source: Census and Statistics Department

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