Research

September 2013

Hong Kong Monthly

REVIEW AND COMMENTARY ON 'S PROPERTY MARKET

Office

Stable leasing activity across major business districts

Residential Secondary sales suppressed with new projects launched Retail Market focus shifts to local retailers and non-core 1 areas September 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 Q2 2013 +3.3% +4.9% +1.4% +3.0%

Inflation rate Jul 2013 +6.9% +5.3% +4.1% +4.4%

May 2013- Unemployment 3.3%# 3.4% 3.1% 3.2% Jul 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 70 100 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 Jan to Jun 2013

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Monthly review

Hong Kong’s Grade-A office leasing market remained stable last month, with expansion activity brisk, but the sales sector remained sluggish amid the government’s cooling measures. In the residential market, the primary sector revived, but the Relocation secondary market was further suppressed with the launch of new projects. In the retail property market, rents in core demand driven by shopping areas appeared to peak as expansion from redevelopment international brands slowed. Market focus shifted to local “slowed retailers who continued to target Mainland visitors and considerably, as strengthen their market share in locations with lower rents, such as second-tier shopping streets and non-core areas such most tenants had as the . settled in new locations.

Prime office slowed considerably, as most tenants had settled in new locations. Sentiment in the Grade-A office sales However, both districts remained market remained cautious in August. relatively active, with a number of ” However, despite limited transactions reported. Networking transactions, a result of the sustained website LinkedIn relocated from a effect of the government’s various business centre in Causeway Bay to a stamp duties, prices stood firm. One 16,481-sq-ft floor in in major sales transaction last month the same district, while American involved 9,420 sq ft of space and marketing and communications firm some car-parking spaces in Young & Rubicam took a Enterprise Square Two in 10,743-sq-ft floor in Oxford House in Bay sold for HK$7,696 per sq ft. Quarry Bay.

The Grade-A office leasing sector Kowloon witnessed a growing trend In 2013, the in tenants choosing to renew existing witnessed stable activity, especially towards the end of the month as the contracts rather than relocate, as total number of summer holidays ended. A number office supply remained tight. The residential sales of firms from the financial, narrowing gap in rents between core advertising, media and IT industries, and non-core areas also discouraged “is expected to relocation to non-core districts. requiring small to medium-sized fall about 20% office space, underwent expansion. For example, Dutch asset In Central, an annual average of only to fewer than management firm Robeco expanded 100,000 sq ft of new Grade-A offices in Man Yee building in Central, taking will be completed in 2013 and 2014. 70,000 units. a 5,935-sq-ft space, while Japanese Limited supply and stable demand media firm Nikkei increased its office will keep rents stable. Some size at 28 Hennessy Road in Wan buildings are actually seeing rental Chai, leasing a 4,935-sq-ft unit. growth—rents of premium buildings have risen 4.8% from a year ago. The recent, brisk relocation activity Meanwhile, Grade-A office prices in ” driven by the redevelopment of Hong Kong will remain stable as long Somerset House in Quarry Bay and as the government continues to Sunning Plaza in Causeway Bay implement cooling measures.

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Residential in demand from ‘super luxury’ to will total 20,000 sq ft on the first and ‘mid-range luxury’ units, probably second floors of Po Wing Building. due to the lowering of The local secondary home market accommodation allowances for staff With the Japanese economy became even more sluggish in in the finance sector and greater remaining sluggish and domestic August, with the total number of cost-awareness among tenants, of retail sales shrinking, Japanese transactions dropping a further 14.5%, them many were shifting to personal retailers are being driven into other month on month, to 3,407—the leases. Although landlords of luxury Asian markets. Muji, for example, lowest figure since January 2013. Few properties remained negotiable, the opened a second Tuen Mun store in deals were recorded in major leasing market was less active, V City, atop the MTR station. residential estates last month and the despite it being the traditional peak secondary home market is expected summer season. Luxury residential Man Kam To Port in Shenzhen, to remain inactive in coming months, rents dropped 2.7% in August, the across the river from Sheung Shui, as new mass-market projects biggest dip since August 2009. reopened in August and is expected continue to attract buyers. to boost the retail market in the Transaction volume will only rebound With various cooling policies in place Northern New Territories. To take when homeowners become willing to and market sentiment remaining advantage of the increase in cut prices sharply. cautious, we believe there will be a potential shoppers, drop in activity in both the primary in Sheung Shui is providing a The primary sector showed signs of and secondary markets over the year. cross-border express bus service revival, with more mass-market In 2013, the total number of between the port and the shopping projects becoming available for sale residential sales is expected to fall centre. We expect the Northern New or in the pipeline. In particular, The about 20% to fewer than 70,000, Territories to attract more attention Rise in Tsuen Wan, developed by with mass residential prices from both retailers and consumers, Cheung Kong (Holdings) (0001.HK) dropping less than 5% and prices in as a major shopping spot for managed to sell around 200 units on the more resilient luxury sector same-day travellers. the first day of launch, the strongest falling less than 3% in the rest of the response recorded since the year. Residential Properties (First-hand In August, retail property rents in Sales) Ordinance took effect on 29 prime streets appeared to have April. Meanwhile, New World Retail peaked. The ground to first floors of Development (0017.HK) also sold in Tsim Sha Tsui, covering In July, retail sales growth slowed about 82% of the 238 flats on offer 36,500 sq ft of space, were compared to the double-digit reportedly leased to a number of at Park Signature in Yuen Long on growth in the same period last year, jewellers for HK$15 million per the first day of launch but still increased 9.5% to HK$40 month. The average rent of HK$410 billion. For the first seven months of per sq ft was virtually unchanged Developers redefined their sales 2013, retail sales recorded compared with the previous lease. strategies, postponing project double-digit annual growth in both Over 2013, we maintain our forecast launches as market sentiment value and volume, increasing 14.2% that rents in prime retail districts will deteriorated after stricter sales rules and 13.6% respectively. came into practise and more witness annual growth of 3–5%. property measures were implemented by the government. As The unstable global economy buyers became more cautious, coupled with softening local consumption continued to put a developers cut prices and offered We expect the attractive financial terms to make damper on expansion by leading their new projects more financially international brands. In contrast, Northern New appealing. We expect developers to local and Japanese retailers pitch new releases at a smaller increased their presence in both core Territories to premium over prices in the and non-core retail districts. Local attract more department store Sincere will “ secondary market. Some areas, such as Tseung Kwan O and Yuen Long, reportedly open two stores in attention from will see ample new supply and prices September—one in Li Po Chun both retailers and will be under pressure in the coming Chambers in and the months. other in Kingwah Centre in Mong consumers. Kok—plus another in Causeway Bay by the end of 2013. The third store On the leasing front, there was a shift

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PRIME OFFICE

Table 2 Selected office sales transactions

Tower / floor Gross floor Price Price A limited number of office District Building / unit area (sq ft) (HK$M) (HK$ psf) sales transactions were 12th floor recorded last month. Enterprise (various units Kowloon Bay 9,420 $72.5 $7,696 Square Two and car-parking spaces)

Lippo Sun 8th floor / Tsim Sha Tsui 3,254 $50.43 $15,498 Plaza unit 16

Tower 2 / Admiralty Lippo Centre 1,585 $26.94 $16,997 4th floor / unit A

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

Table 3 Selected office leasing transactions

The Grade-A office leasing District Building Tower / floor / unit Floor area (sq ft) market remained active Central Man Yee Building 27th floor / units 04–05 across all major business 5,935 (I) th districts last month. Causeway Bay Hysan Place 38 floor 16,481 (L) th Quarry Bay Oxford House 16 floor 10,743 (L) Wan Chai 28 Hennessy Road 18–19th floor 9,870 (L) Langham Place Office Mong Kok 39th floor 17,399 (G) Tower

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 (Aug 2013)

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

in August.

Table 5 Prime office market indicators (Aug 2013) In August, Grade-A Net effective Change Price Change office prices remained rent stable in all districts. HK$psf From From From From From From District HK$ psf /mth Jul 13 May 13 Aug 12 Jul 13 May 13 Aug 12 Premium 143.3 0.0% -0.5% 4.8% n/a n/a n/a n/a Central

Traditional 105.5 -0.6% -1.4% -1.8% 26,958 0.0% 0.0% 1.4% Central

Admiralty 81.9 -0.5% -0.5% -1.2% 22,455 0.0% -0.2% 10.8%

Sheung 62.1 0.0% 2.2% 3.0% 20,437 0.0% -1.1% 5.5% Wan

Wan Chai 61.2 0.3% 1.1% -2.1% 18,265 0.0% -0.4% 10.3%

Causeway 64.9 -0.3% -0.4% -4.0% 17,631 0.0% 0.0% 12.1% Bay

North Point 43.2 2.1% 4.6% 19.2% n/a n/a n/a n/a

Quarry Bay 49.8 1.1% 1.1% 6.2% n/a n/a n/a n/a

Tsim Sha 53.9 1.0% 1.0% 6.6% 12,098 -0.4% -1.0% 4.1% Tsui

Cheung Sha 29.8 1.7% 9.1% 23.9% n/a n/a n/a n/a Wan

Hung Hom 37.0 0.0% -0.9% 15.5% n/a n/a n/a n/a

Kowloon 40.0 5.2% 3.4% 15.3% n/a n/a n/a n/a East

Mong Kok/ 50.3 3.9% 0.6% 4.6% n/a n/a n/a n/a Yau Ma Tei

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

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Residential

Table 6 Selected residential sales transactions

Only 234 luxury residential Tower / Salable Price Price District Building sales transactions worth floor/ unit area (sq ft) (HK$M) (HK$ psf) th HK$10 million or above Happy The Leighton Hill Tower 7 / 16 1,485 $50 $33,670 Valley floor / unit A were recorded in August. Tsim Sha The Arch Tower 2A / 38th 1,041 $31.5 $30,259 Tsui floor / unit B Tsim Sha The Masterpiece 33rd floor / unit 1,038 $26.8 $25,800 Tsui G Happy Cavendish Heights Tower 6 / 28th 1,583 $40.3 $25,458 Valley floor / unit A Mid-Levels Hillsborough Court Tower 1 / 27th 776 $15.8 $20,361 Central floor / unit B

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

Table 7 Selected residential leasing transactions

Tower / Salable Monthly Monthly rent A number of luxury District Building floor / unit area (sq ft) rent (HK$) (HK$ psf) residential properties were The Peak Conduit Road Mid floor / 2,042 $168,000 $82.3 leased last month. 39 unit A

Grosvenor Island South Mid floor 1,974 $150,000 $76.0 Place

Island South Le Palais House 2,546 $160,000 $62.8 Tower 6 / Mid-Levels Bel-Air No 8 high floor / 1,439 $70,000 $48.6 unit A

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

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Table 8 Month-on-month movement of luxury residential rents (Aug 2013)

Residential rents in all five Jardine’s Lookout Peak Island South Mid-Levels Pokfulam major luxury districts / Happy Valley dropped in August.

Table 9 Luxury residential market indicators (Aug 2013) The Peak recorded a drop Net effective Change Price Change of 7.9% in luxury home rent rents, the largest dip HK$psf/ From From From From From From District HK$psf among the five districts. mth Jul 13 May 13 Aug 12 Jul 13 May 13 Aug 12 The Peak $53.3 -7.9% -8.0% -10.5% $22,919 0.0% 0.0% -3.2%

Mid- $41.4 -0.2% 0.1% -3.1% $21,691 0.3% 1.0% 2.9% Levels

Pokfulam $31.3 -0.4% -1.4% 2.0% $19,287 1.0% 0.7% 3.6%

Jardine’s Lookout $38.5 -2.3% -5.2% -4.3% $20,255 -0.2% -0.4% 6.7% & Happy Valley

Island $41.9 -0.3% -2.1% -2.3% $24,786 0.0% -1.2% -0.6% South Source: Knight Frank Rents and prices are subject to revision.

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Retail

Table 10 Selected retail sales transactions

Gross floor Price Price In August, non-core District Building Floor / unit area (sq ft) (HK$M) (HK$ psf) districts witnessed a Hang Tat Ground floor Wan Chai 583 $65 $111,492 number of major retail Mansion / unit A

property sales transactions. Basement / 31 North Point City Golden $3.154 $101,742 unit 203 (net)

Kwok Tai Ground floor Kwun Tong 4,530 $278.9 $61,568 Building / units A–B i.UniQ Ground floor Shau Kei Wan 14,000 $408 $29,143 Grand / units 1–3

New Mandarin Ground floor Tsim Sha Tsui 16,867 $185.54 $11,000 Plaza Arcade / unit 9

Source: Economic Property Research Centre Note: All transactions are subject to confirmation. ber of major retail property sales transactions were Table 11 recorded in core districts. Selected retail leasing transactions

Monthly Monthly In August, second-tier Net floor District Building Floor / unit rent rent area (sq ft) streets saw a number of (HK$) (HK$ psf) major leasing transactions. Ground floor Aberdeen Mosbert Mansion 344 $107,800 $313.4 / unit 6

Causeway Yan Wo Yuet Ground floor 345 $120,000 $347.8 Bay Building / unit 2 (gross) Ground floor Yau Ma Tei Tougha Mansion 405 $128,000 $316.1 / unit 504A

Eldo Garden Ground floor Tuen Mun 240 $63,000 $262.5 Shopping Centre / unit 18

Sunshine City 2nd floor / Ma On Shan 313 $53,424 $170.7 Plaza unit 202

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 (Aug 2013) Retail rents in Hong Kong’s Central Causeway Bay Tsim Sha Tsui Mong Kok four core shopping areas remained stable in August 2013.

Table 13 Retail sales by outlet type (Jul 2013)

For the first seven Value Share of total Change months of 2013, retail From From From Outlet (HK$ billion) % sales recorded Jun 13 Apr 13 Jul 12 double-digit annual Jewellery, watches and clocks and $10.1 25.3% -5.5% -22.7% 28.2% growth in both value and valuable gifts volume, up 14.2% and Clothing, footwear $5.3 13.1% 18.4% 5.9% 6.5% 13.6% respectively. and allied products Department stores $4.1 10.2% 2.8% 6.6% 22.0%

Fuel $0.8 2.1% -4.7% 0.8% 4.1%

Food, alcoholic drinks and tobacco $2.5 6.3% 0.2% -9.5% 2.7% (excluding supermarkets)

Consumer durable $6.0 15.1% -1.2% -3.2% -9.8% goods

Supermarkets $4.1 10.3% 1.3% 8.5% 4.8%

Others $7.1 17.7% -2.1% -6.6% 8.4%

All retail outlets $40.0 100.0% 0.3% -7.1% 9.5%

Source: Census and Statistics Department

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