Hong Kong Monthly
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Research October 2012 Hong Kong Monthly REVIEW AND COMMENTARY ON HONG KONG'S PROPERTY MARKET Knight Frank 萊坊 Office Vacancy pressure to remain high in Central Residential Local demand further boosts residential market Retail Slowdown in Chinese economy curbs tourist spending 1 October 2012 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 Q2 2012 +1.2% +6.8% +5.0% +3.8% Inflation rate Aug 2012 +3.7% +2.4% +5.3% +3.4% Unemployment Jun-Aug 2012 3.2%# 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 = 100 230 190 300 210 170 19 0 250 150 170 200 150 130 130 110 150 110 90 90 100 70 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 Monthly reviEW Hong Kong’s office property market saw divergent performances last month, with sales activity remaining buoyant but leasing activity turning quiet. Positive signs were seen in both the primary and secondary residential markets, with a number of record-breaking transactions concluded. Meanwhile, the retail An increasing property market remained heated, despite the slower growth in number of retail sales over recent months. small-to-mid “sized, Grade-A floor plates came Prime office particularly medium-sized companies onto the Central with offices in Central. office market. The office investment market In recent months, an increasing remained heated last month, as it number of small-to-mid sized Grade-A continued to record major floor plates have come onto the transactions. A 20,500-sq-ft floor in market in Central. A number of COSCO Tower in Sheung Wan sold for traditional Grade-A office buildings in approximately HK$471 million or the district have experienced a rise in ” HK$23,000 per sq ft, marking a vacancy rates, with some as high as per-sq-ft price record in the building. 20%. The average Grade-A office price grew for the sixth consecutive month, rising Central landlords are expected to 2.2% month on month. show greater flexibility in rent negotiation, as vacancy pressure is In contrast, the leasing market was unlikely to ease in the short term and relatively quiet in September, amid an the rent gap between core and uncertain economic outlook despite non-core districts remains substantial. the announcement of the third round We maintain our forecast that Grade-A of Quantitative Easing (QE3). Only a office rents in Central will drop 5–10% handful of transactions involving large in the second half of 2012. floor plates were recorded. One financial institution reportedly took up Overall, we expect four floors of 169 Electric Road in Residential North Point totaling about 42,000 sq home prices to ft. Meanwhile, an investment bank The flow of liquidity into Hong Kong’s increase 5% over renewed its lease of a whole floor in property market was virtually assured One Exchange Square, Central, with the announcement of QE3 by the “the year and rise measuring 12,973 sq ft. US Federal Reserve. This further another 10% in fuelled the property market and Hiring intentions remained weak, record-breaking prices were witnessed 2013. particularly in the financial sector. in both the primary and secondary According to one recruiting firm, only markets. 37% of financial firms they interviewed are planning to increase Luxury residential prices stayed firm, headcount in the third quarter, given the limited supply in traditional resulting in low demand for office luxury residential areas. A number of ” space. The corporate sector continued record-breaking deals were reportedly to seek low-cost office solutions, concluded. For instance, a 3,866-sq-ft KnightFrank.com.hk 3 October 2012 Hong Kong Monthly environment likely to last until 2015, Despite shoppers’ cautious behaviour, duplex in Kennedy Park at Central sold we expect home prices to increase the retail leasing market remained for HK$48,629 per sq ft—a new about 5% over the year and about 10% active in September. International price-high for Mid-Levels Central. in 2013. However, we believe a price brands continued to enter and expand correction may take place in in Hong Kong. Some major retailers OPUS HONG KONG in Mid-Levels East 2014–2015 with the eventual shifted their attention to non-core sold an 8th floor, 6,755-sq-ft apartment realisation of the government’s districts, taking advantage of for HK$430 million or HK$63,000 per various initiatives to increase home increased shopper flow in these more sq ft—the second highest price for an supply. cost-effective locations. apartment in Asia. Apple Inc (AAPL.NASDAQ), for example, Sentiment in the primary market Retail launched its second branded Hong remained strong and last month, the Kong store in Festival Walk, Kowloon market was dominated by two major At end September, the soft opening of Tong, more than a year after its project launches, namely Century Housing Authority (HA)’s eight-storey flagship Hong Kong store opened at Gateway in Tuen Mun and Double Domain added 484,380 sq ft of retail IFC mall in Central. The 150,000-sq-ft Cove in Lok Wo Sha. A 1,855-sq-ft space to Yau Tong. The biggest mall in space was reportedly leased for penthouse at Century Gateway sold for East Kowloon had been 98% HK$3.7 million or HK$250 per sq ft per HK$18,300 per sq ft—the highest preleased for HK$39 per sq ft per month. property price ever recorded in Tuen month on average. This is HA’s first Mun. Meanwhile, Double Cove major centre since its divestment of Meanwhile, fashion brand Agnes b. reportedly sold more than 70% of its retail properties to The Link REIT. HA expanded its space on the 3rd floor of units within a month. has introduced new retailers such as New Town Plaza in Sha Tin from 2,500 Esprit, SaSa, Genki Sushi, Thai Hing, sq ft to 7,000 sq ft, becoming its As the government had sped up the Hak Ka Hut, Food Republic and SUPA second flagship store in Hong Kong. approval process of pre-sale flats, the DEPA, a brand new concept under A.S. total number of flats launched for Watson Group. There is also a small On the investment front, QE3 spurred pre-sale in September was more than retail zone for NGOs, sole proprietors the prices of retail property and the double that of August. We expect the and local designers’ lables. volume of retail sales transactions and number to grow further in the coming some foreign institutional investors months. This is the first time HA has employed began to return to the market. Several a private consultant, Knight Frank, to floors of Ever Gain Plaza in Kwai Luxury residential rents dipped 0.4% undertake leasing activities. We have Chung, totaling 560,000 sq ft, were in September, with demand weakened been involved in this project since reportedly sold to a foreign fund for after the summer peak season. 2003, helping re-plan the conceptual HK$1.6 billion or HK$2,857 per sq ft. Landlords became more flexible and design. In 2008, we were appointed willing to reduce asking rents. We as a Principal Leasing Advisor to Looking forward, Hong Kong will expect the leasing market to remain advise on the overall leasing and remain a major platform for stable in the remaining months of the marketing strategy. international brands to reach year. Mainland shoppers. The pick-up in In August, a slightly faster visitor arrivals and the sustainable To reduce credit risk, the Hong Kong year-on-year increase in retail sales local labour market should support Monetary Authority announced further was posted along with increased retail businesses. Given the limited regulatory measures, requiring banks visitor arrivals from July. However, the availability of prime space, we expect to further tighten the underwriting sales value of jewelry, watches and retail rents in core retail districts to criteria for mortgage loans to clocks and valuable gifts declined rise 10–15% over 2012. The expansion borrowers with mortgages on multiple 3.4% from July 2011—the biggest of international retailers will continue properties. This measure is expected decline since 2009. In the first four to spill over to non-core areas. to affect only people with multiple days of the eight-day Golden Week properties and non-local residents national holiday, a 10% year-on-year applying for loans in Hong Kong. decline in the number of Mainland Retail rents in core Therefore, we do not anticipate this tourists cast a cloud over Hong Kong measure to have a big impact on both retailers. With rising economic retail districts are transaction volumes and prices. uncertainty, both local consumers and set to rise 10–15% Mainland tourists had curbed their With home supply limited in the short spending, especially on luxury items.