Hong Kong Monthly
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Research December 2013 Hong Kong Monthly REVIEW AND COMMENTARY ON HONG KONG'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 2 2 KnightFrank.com.hk 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 Kowloon 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 from corporate tenants. for HK$29,000 per sq ft—the third 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 and capital accumulates. Grade-A started to negotiate rent renewals early before their leases expired. office prices are set to remain stable or experience modest drops next Notable transactions last month involved British American Tobacco year. Hong Kong, which took up the entire 28th floor of DCH Commercial The leasing market is expected to see 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 Tsim Sha Tsui, 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 Harbour City 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 Mong Kok, 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$667 per sq ft per month. accumulates. the first batch of properties launched were 20% lower than those in the Despite slowing growth of local retail vicinity. Meanwhile, Nan Fung sales in recent months, some Development (3377.HK) offered international retailers were still discounts of up to 22% on the launch We expect rents of seeking to enter or expand their of its first batch of 318 units at The footprint in Hong Kong—especially prime-street shops Visionary in Tung Chung. in prime shopping centres—thanks to remain stable in to the stable local economy and the New projects launched at discounted further growth of inbound tourism. the coming year. prices absorbed a large portion of “ For instance, the British perfume 4 ” KnightFrank.com.hk PRIME OFFICE Table 2 Selected office sales transactions Floor area Price Price District Building Floor unit An office in Nine Queen’s (sq ft) (HK$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.