Hong Kong Monthly Research

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Hong Kong Monthly Research RESEARCH MAY 2018 HONG KONG MONTHLY REVIEW AND COMMENTARY ON HONG KONG'S PROPERTY MARKET Office Residential Retail More consolidation activity in Housing supply shortage will Improved confidence shown in Kowloon East remain in the short term retail prospects HIGHLIGHTS Despite the high rents, Chinese financial institutions still favour premium offices in Central. On the Kowloon side, Kowloon East is a popular location for office consolidation. Residential sales surged 56% month on month in April. Home prices continued to hit new highs, led by the mass market segment. Pre-letting activity in retail shops reflects improved market confidence in the retail outlook. TABLE 1 Economic indicators Economic indicator Period Latest reading 2015 2016 2017 GDP growth Q1 2018 +4.7%# +2.4% +1.4% 3.8% Inflation rate Mar 2018 +2.6% +3.0% 2.4% 1.5% Unemployment Feb - Apr 2018 2.8%^ 3.3% 3.4% NA Prime lending rate Current 5.00–5.25% 5.00%* 5.00%* 5.00%* Source: EIU CountryData / Census & Statistics Department / Knight Frank Research # Preliminary ^ Provisional * HSBC Prime Office Hong Kong Island Kowloon FIGURE 1 Grade-A office prices and rents The average rent for Grade-A office Office leasing activity in Kowloon East space in Central increased 0.6% month was active in April, driven by the Jan 2007 = 100 electronics and sourcing sectors. With 350 on month (M-o-M) to around HK$158 per PRICE INDEX sq ft per month in April. Leasing demand limited new supply in Tsim Sha Tsui, RENTAL INDEX 300 was robust during the month, driven rents continued to grow, underpinned by mainly by the banking and finance semi-retail tenants. 250 sector. A very low vacancy rate of 1.0% was recorded in April, down 0.1 Kowloon East appears to be a preferred 200 percentage point M-o-M. location for office consolidation, as there are a number of new buildings offering 150 Despite the historically high rents, large floor plates for relatively low rents. Chinese financial institutions still favour As an example, DBS rented 200,000 sq 100 premium offices in Central. Hua Xia Bank ft in Two Harbour Square in Kwun Tong rented 15,340 sq ft in Two IFC for its for around HK$25 per sq ft per month, 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 office expansion. Guotai Junan which is less than half the rent in Securities rented 11,463 sq ft in Man Yee Kowloon Central. This consolidation Source: Knight Frank Research Building. Leasing activity in new office trend is expected to continue, as these buildings, including Lee Garden Three office buildings with large units are hard and One Taikoo Place, was active, with to find in other districts. most of their floors already pre-let. Sustainable leasing demand in Kowloon With strong leasing demand, we expect East is making a case for a turnaround in office rents on Hong Kong Island to rents, which are expected to rise 0-2% in continue their upward trend for 2018. 2018. 2 HONG KONG MONTHLY RESEARCH Residential Retail FIGURE 2 Luxury residential prices and rents Residential sales in April surged 56% M- The street shop leasing market in April Jan 2007 = 100 o-M to 6,646, the first month since June was more active than in the previous 190 2017 that recorded over 6,000 month, with more transactions recorded PRICE INDEX transactions. There was a lack of new in core areas. For instance, a 1,200-sq-ft RENTAL INDEX 170 launches of major primary projects, but street-front shop in Man Yee Building in 150 more batches of units from previously Central was leased by Folli Follie, luxury launched projects were released. jewellery and watch brand, for 130 Meanwhile, secondary residential HK$650,000, or around HK$541.7 per sq transactions continued to increase, ft per month, a reported rent drop of 110 resulting in a 2:8 ratio between primary close to 40% compared with that of three 90 and secondary sales in the first four years ago. In contrast, a shop in 62 Sai months of 2018, compared with 3:7 in Yeung Choi Street South in Mong Kok 70 previous years. was rented by Swatch, a watch brand, for HK$700,200 or HK$1,167 per sq ft, 50 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Led by the mass residential segment, which is 17% higher than the rent three Source: Knight Frank Research housing prices continued to hit new years ago. highs, with the latest official data in March up 20.4% from the previous peak. Apart from core areas, a series of street Meanwhile, the luxury residential sales shop leasing transactions were recorded market saw active Mainland buyers, who in non-core areas like Sheung Shui, in FIGURE 3 Retail property prices and rents eyed prestigious primary luxury the range of HK$240-290 per sq ft per properties. Transactions of flats worth month. Pre-letting activity in retail shops Jan 2007 = 100 HK$10 million or above jumped 44% M- reflects improved market confidence in 400 PRICE INDEX o-M to 1,337 units, a new high since last the retail outlook. Some retailers are RENTAL INDEX June. starting to figure out a balance between 350 online sales and physical retail shops to 300 There will be around 96,000 private flats expand their business. 250 available in the coming 3-4 years, 200 according to the official projection. “The Major shopping centres recorded a 7- Big Debate: Land Demand in Hong 10% boost in sales performance, as 150 Kong” was kicked off, with 18 land supply shown in developers’ 2017 financial 100 options open for public consultation. results. The Retail Management 50 However, most of the solutions are Association expects retail sales for the proposed to address long-term housing whole year to surpass the record of demand, while supply shortage will HK$494 billion in 2013. Source: Rating and Valuation Department / Knight Frank Research remain in the short term given strong Note: Provisional figures from Sept 2017 to Feb 2018 demand from both end-users and Amid improved retail prospects, rents are investors. starting to pick up, with vacant shops in prime streets expected to be taken up With limited signs of the residential gradually in the second quarter of 2018. market cooling down in the short term, we expect mass residential prices to rise 8-12% in 2018. 3 SNAPSHOT SNAPSHOT PRIME OFFICE A number of major office sales TABLE 2 transactions were registered on Selected office sales transactions (Apr 2018) Hong Kong Island in April. Floor area Price (HK$ Price (HK$ District Building Zone (sq ft) million) per sq ft) Goldman Sachs leased 90,000 sq 1 Lyndhurst ft of office space in Lee Garden Central Low 1,097 (N) $33 $29,626 Tower Three, Causeway Bay. Admiralty Lippo Centre Low 1,646 (N) $87 $52,776 Wan Chai CNT Tower High 950 (N) $22 $22,716 Source: Economic Property Research Centre Note: All transactions are subject to confirmation. N: net; G: gross TABLE 3 Selected office leasing transactions (Apr 2018) Lettable floor area District Building Zone (sq ft) Central Two IFC Low 15,340 Central Man Yee Building Low 11,463 Causeway Bay Lee Garden Three High 90,000 Sheung Wan West Exchange Tower High 10,222 Tsim Sha Tsui Ocean Centre High 45,000 Source: Knight Frank Research Note: All transactions are subject to confirmation. 4 HONG KONG MONTHLY RESEARCH SNAPSHOT TABLE 4 Month-on-month movement in Grade-A office rents (Apr 2018) Tsim Sha Tsui and Mong Kok Central / Wan Chai / North Point / Tsim Sha Kowloon East Grade-A office rentals Admiralty Causeway Bay Quarry Bay Tsui outperformed other major business districts in April. Admiralty led, with the largest Grade-A office price growth of all major commerical districts last month. TABLE 5 Prime office market indicators (Apr 2018) Net Price effective Change Change rent (Gross) HK$ psf M-o-M Q-o-Q Y-o-Y M-o-M Q-o-Q Y-o-Y District HK$ psf / mth Change Change Change Change Change Change Premium $192.3 0.0% 1.0% 4.7% n/a n/a n/a n/a Central Traditional $140.4 1.0% 3.8% 7.9% n/a n/a n/a n/a Central Overall $158.0 0.6% 2.6% 6.5% $42,626 1.9% 7.2% 27.4% Central Admiralty $115.1 0.2% 0.9% 11.0% $35,270 5.9% 7.4% 24.8% Sheung $84.7 0.7% 3.3% 14.0% $33,498 3.2% 9.5% 42.3% Wan Wan Chai $80.3 0.8% 1.6% 7.2% $29,028 0.0% 1.4% 10.8% Causeway $83.7 0.9% 3.9% 8.4% $25,139 0.0% 1.6% 10.1% Bay North Point $54.1 0.0% 2.0% 6.8% n/a n/a n/a n/a Quarry Bay $54.6 0.1% 2.5% 5.4% n/a n/a n/a n/a Tsim Sha $67.6 1.2% 4.6% 8.3% $17,506 1.1% 9.1% 23.0% Tsui Cheung $32.3 0.6% 4.1% 5.7% n/a n/a n/a n/a Sha Wan Hung Hom $43.3 0.9% 0.6% 4.4% n/a n/a n/a n/a Kowloon $34.2 0.1% -0.5% 0.9% $13,142 0.1% 0.8% 6.1% East Mong Kok / $59.5 1.3% 0.6% 11.0% n/a n/a n/a n/a Yau Ma Tei Source: Knight Frank Research Note: Rents and prices are subject to revision.
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