Research January 2013 Hong Kong Monthly REVIEW AND COMMENTARY ON HONG KONG'S PROPERTY MARKET Knight Frank 萊坊 Office Downward pressure on Central rents eases Residential Cooling policies curb transactions, but not prices Retail Shop rents rise further alongside retail sales1 January 2013 Hong Kong Monthly M arket 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 Economic Latest 2012 Period 2010 2011 indicator reading forecast GDP growth Q3 2012 +1.3% +6.8% +5.0% +3.8% Inflation rate Nov 2012 +3.7% +2.4% +5.3% +3.4% Unemployment Sep-Nov 2012 3.4%# 4.4% 3.4% 3.4% 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 70 100 70 50 50 50 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 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 2 2 KnightFrank.com.hk Monthly reviEW The government’s tightening measures on the property market continued to suppress residential sales volume, but home prices remained stable. Sentiment in the retail and office sales markets sustained, with the continual influx of capital shifting over from the residential sector. In the leasing market, the retail sector We believe rent continued to outperform, while residential leasing was quiet correction in during the traditionally slow season and office leasing remained Central will be sluggish with demand being low. “limited to 5% in 2013. Prime office HK$8,000 per sq ft. Meanwhile, two mid-floor units totaling 3,900 sq ft in Bank of America Tower in Central were The Grade-A office leasing market was snapped up for about HK$103 million ” quiet in the traditionally slow season or HK$26,560 per sq ft. of December in 2012. There were few headline-grabbing leasing deals and 2012 was not the best year for Hong most deals involved lease renewals or Kong‖s office leasing market, relatively small premises. particularly for Central, as the corporate sector was clouded by the Vacant space in Central continued to slow world economy. While leasing be absorbed in a market where demand needs more time to recover, Potential relatively low rents were being asked. we believe the downward pressure on A US bank, for example, reportedly Central rents will ease in 2013, after homebuyers have committed to seven floors totaling having fallen 14.6% in 2012. 150,000 sq ft in Cheung Kong started to digest Center—one of the largest deals of the An increasing number of office “the impact of the year. A German bank, meanwhile, buildings in Central saw satisfactory renewed the lease of its 22,000-sq-ft take-up rates in the past few months. government’s office in Two IFC. Moreover, Grade-A office supply in the cooling policies area is tipped to remain limited in the Retailers continued to expand their foreseeable future, especially after the and return to the offices. American boat paint supplier call-off of the former Central market. Interlux took a 10,000-sq-ft mid floor Government Offices redevelopment at 633 King's Road in Quarry Bay, following its Grade One Historic while a data centre expanded its office Building classification. We therefore in Central Plaza, Wan Chai, lifting the believe CBD rents will fall no more total amount of space taken in the than 5% in 2013. Meanwhile, rents in building to about 15,000 sq ft. non-core districts should rise about ” 5%, with Kowloon East likely to see While the office leasing market was 10–15% growth. relatively quiet, the office sales sector remained heated last month. Seven floors covering a total of 196,000 sq ft Residential in Exchange Tower in Kowloon Bay, along with 30 car-parking spaces, Sentiment in the residential market were sold for about HK$1.57 billion or remained sluggish after the 3 January 2013 Hong Kong Monthly renforcement of the Buyer‖s Stamp applications were received for the residential property market, capital Duty and Special Stamp Duty towards 1,000 available units in the first two continued to flow into the retail the end of last year. Residential sales weeks of subscription. investment sector. Retail space volume plunged 53.3% in December totaling 61,347 sq ft attached to the 2012 to 3,286—the lowest monthly The leasing market remained stable in residential development Florient Rise level in the year. However, due to low December, a traditionally quiet season. in Tai Kok Tsui was sold to a local interest rates, an inflationary With business expansion by investor for HK$630 million or environment and the strong financial international corporations slowing HK$10,269 per sq ft. Meanwhile, position of landlords, sales involving and demand from expatriates strata-title sales of retail space in significant price-cuts or losses were weakening, rents in the luxury market Ginza-type commercial buildings were scarce. Luxury residential prices dropped 6.7% over 2012. However, also robust last month. All shops in H8 remained stable last month, while rents in the mass market grew 17.5% in Tsim Sha Tsui, for example, were mass residential prices increased last year, as some potential sold in December for 1.2%. Over 2012, the number of homebuyers shifted to the leasing HK$16,300–20,000 per sq ft, less residential transactions dropped 3.7% market amid uncertain conditions in than a month after it was acquired en year on year to 81,333. Their total the sales sector. bloc. Due to limited investment consideration, however, increased channels and strong liquidity, 2.2% to HK$452 billion, with price To meet housing demand, the Chief sentiment in the retail investment rises over the year of 2.7% in the Executive is expected to announce market is expected to remain strong in luxury market and 23.0% in the mass further measures in his first Policy the near future. market. Address on 16 January 2013. However, supply is still expected to lag behind Early December saw the official Having adopted a wait-and-see demand in the short to medium term. opening of the 485,000-sq-ft Domain attitude for nearly two months, We therefore expect residential prices Shopping Centre, strategically located potential homebuyers appeared to to remain stable in 2013, with only adjoining Yau Tong MTR station and have digested the impact of the minor corrections. the first major centre in the area. cooling policies and started to return Domain has attracted a number of to the market. Developers also started Retail quality tenants including Supa Depa, We expect rents in to regain momentum in launching new a new lifestyle department store prime retail areas to projects. In December, High Place in In November 2012, the retail sales developed by A.S. Watson; the first J+ continue to increase Kowloon City and The Wings II in value climbed 9.5% year on year to from Jumping Gym and a 20,000-sq-ft 10-15% in 2013. Tseung Kwan O, developed by food court on the top level developed reach a four-month high of HK$36.5 Henderson Land (0012.HK) and Sun billion, beating analysts‖ earlier by Food Republic. Hung Kai Properties (0016.HK) estimation of 4.4%. Notably, the sales Over 2012, prime retail rents grew respectively, were launched with value of ―Jewellery, watches, clocks about 10%, while capital values promotional packages to boost and valuable gifts‖ experienced a surged more than 30%, given the tight demand. In the first few hours of strong surge, rebounding 13.7% year supply. In 2013, we maintain our release, all the 50 units launched in on year, after falling about 3% in positive outlook for the retail sector The Wings II were sold out for an October. This reflected a significant average of HK$10,688 per sq ft—far improvement in consumer sentiment. and expect rents in prime retail areas lower than market expectation. to increase another 10–15%. Car-parking spaces worth HK$1.38 Brisk retail activity continued to million apiece were offered to buyers encourage business expansion, with for free. international retailers continuing to dominate prime retail space, due to The residential sales market was also their high tolerance of increasing Rents in prime retail heated up by the launch of Greenview rents. According to market news, areas are expected Villa in Tsing Yi, a subsidised housing Hugo Boss leased a 24,000-sq-ft shop project developed by the Hong Kong in Central Building, Central, while in to rise another Housing Society (HKHS). Originally the same district, a 3,000-sq-ft unit on planned as a Rent-to-buy Scheme “10-15% in 2013. the ground floor of Wheelock House project by the previous government, was reportedly leased by Italian Greenview Villa has since reverted to a menswear brand Canali for Home Ownership Scheme (HOS) HK$3 million per month. project at prices 30% lower than market rate, to help people climb the With greater policy risks in the property ladder.