Research September 2012 Hong Kong Monthly REVIEW AND COMMENTARY ON HONG KONG'S PROPERTY MARKET Knight Frank 萊坊 Office Luxury brand expansion fuels office demand Residential New policies to have little immediate impact Retail Hysan Place boosts retail market in Causeway Bay1 September 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 +1.1%# +6.8% +5.0% +3.8% Inflation rate Jul 2012 +1.6% +2.4% +5.3% +3.4% Three months to Unemployment 3.2%# 4.4% 3.4% 3.4% Jul 2012 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 = 100 230 190 300 210 170 250 190 150 170 200 150 130 130 110 150 110 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 The local property market was robust last month. In the office market, sales remained buoyant while leasing activities were notable in non-core business areas. Residential sales jumped in the absence of stringent measures to suppress price growth and the retail property sector remained vibrant with the continual influx of Mainland tourists and the landmark opening of the Hysan Place shopping mall in Causeway Bay. Prime office Looking ahead, we expect Central The rent gap landlords to remain flexible in their The appetite of investors for buying asking prices, amid diminishing office between core and offices showed no signs of abating demand in the area. Rising vacancy non-core districts last month. While the transaction rates are likely to drag down Grade-A volume remained stable, the market office rents in Central by 5–10%, “will continue to continued to see major deals being during the second half of 2012. narrow over the concluded, particularly in Kwai Chung. A Mainland-listed company, for Grade-A office rents in non-core areas rest of the year. example, bought two floors in should remain stable or rise slightly in Kowloon Commerce Centre Tower B for the near future. Office supply in Quarry HK$376 million or HK$7,200 per sq ft, Bay will fall in the short term, with the while The Open University of Hong commencement of the 1.8 million-sq-ft Kong bought five floors in the same Taikoo Place Phase Two building for HK$757 million or redevelopment, where existing ” HK$6,087 per sq ft. tenants in the three buildings involved will have to relocate. This will fuel On the leasing front, demand for office office demand, not only in Quarry Bay space by luxury retail brands was but also in other non-core districts fuelled by their continuous store such as Kowloon East, pushing up expansion. Gucci (GUCG.US), for rents in these areas. We therefore instance, leased an 8,600-sq-ft, expect the rent gap between core and We expect luxury half-floor office unit in Hysan Place, non-core districts to continue to Causeway Bay. Chanel also expanded, narrow over the rest of the year. residential prices leasing an 8,700-sq-ft, mid-floor unit to rise up to 10% in Hong Kong Club Building in Central. Residential “by the end of this Other major leasing deals in the Sentiment in the residential market year, while mass month mainly took place in non-core improved in August, as people districts, demonstrating strong residential prices became more convinced that the leasing demand in these areas. British government would not introduce American Tobacco committed to an could rise by up major cooling measures. Pent-up 11,300-sq-ft floor in Oxford House in demand drove up transaction volume to 15%. Quarry Bay. Meanwhile, an by 41.7%, month on month. international advertising agency took up one floor measuring roughly While prices in luxury developments 13,000-sq-ft in DCH Commercial Centre in the same district. ” KnightFrank.com.hk 3 September 2012 Hong Kong Monthly immediate impact is limited, as only residents in Shenzhen to apply for remained stable last month, those in about 1,000 units will be added to the multi-entry permits to Hong Kong has the mass residential market continued market in the short term. been delayed. The scheme could allow to rise, growing 1.4% month on month, about 4.1 million Shenzhen residents’ with a number of record-breaking The government’s measures for multi-entry to Hong Kong, without deals having taken place. For example, increasing housing supply will take having to return to their home a 2,319-sq-ft duplex in Taikoo Shing, years to realise. In the near term, provinces for application. V City, a Quarry Bay was sold for HK$31.4 favourable factors, such as limited 300,000-sq-ft shopping mall atop the million or HK$13,540 per sq ft—the new supply, low interest rates and low Tuen Mun MTR station targeting highest-ever transacted price in the unemployment levels, will prevail. We cross-border shoppers and local development. Meanwhile, a mid-level have therefore revised our forecasts consumers, has pre-leased most of its unit in Block 1 of Metro Harbour View and expect luxury residential prices to space. The mall is expected to open in in Tai Kok Tsui was sold for HK$8,553 rise by up to 10% by the end of year, mid 2013. per sq ft, a new per-sq-ft high for the while mass residential prices could development. increase by up to 15% over the same In July, retail sales expanded a modest period. However, a price correction 3.8%, year on year, as local In the primary market, new projects could be witnessed from 2013 consumers became more cautious to continued to receive a positive onwards, when supply starts to spend, in view of a weak global response last month. The Met. increase notably. economy. Visitor arrivals, meanwhile, Sublime in Sai Wan, for example, grew 13.8% in July compared to a year reportedly sold over half of the 97 earlier. Mainland tourists remained units available in three days. Retail the dominant sector, with their Meanwhile, The Riverpark in Shatin number increasing 21.9% year on year reportedly sold over 710 of its 981 The opening of Hysan Place added and accounting for 74.7% of total available flats. A number of new 450,000 sq ft of prime retail space to visitors. developments are expected to launch Causeway Bay, after a long period of in September. These include Century limited new supply in the district. The Despite the slower retail sales growth, Gateway atop the Tuen Mun MTR 17-storey mall, which features the the further expansion of tourism and a station, owned by Sun Hung Kai city’s first 24-hour bookstore Eslite sustainable local job market should Properties (0016.HK), and Double and another 119 shops, is fully remain supportive to the retail Cove in Lok Wo Sha, a joint occupied. Meanwhile, renovation work property market, which is expected to development by Henderson Land at Lee Theatre Plaza in Causeway Bay, outperform other property sectors in (0012.HK), New World Development also owned by Hysan (0014.HK), is Hong Kong. Given limited supply and (0017.HK) and Peterson Group. due to be completed by mid 2013. continued expansion demand, we expect retail rents in core locations to The leasing market stabilised in Tenants took advantage of the continue to grow, albeit at a slower August, towards the end of the opening of Hysan Place, which has rate of about 5% over the next 12 summer peak season, with luxury attracted increased shopper flow, by months. home rents remaining unchanged. securing street shops near the mall. A Demand from multinational corporate watch retailer, for example, outbid a tenants was still impacted by cosmetics shop to lease the entire uncertainty in the global economy. 12,000-sq-ft building at 519 Hennessy Road for a monthly rent of HK$2 At the end of August, the Hong Kong million. government announced ten measures Retail rents in core to increase housing supply in the On the investment front, quality space short to long term. Major measures in core districts continued to attract locations are included the sales of 830 Home interest from investors. Emperor Ownership Scheme (HOS) units in Tin Group (0163.HK) bought Daily House expected to grow Shui Wai early next year, putting 1,000 in Tsim Sha Tsui, with a net area of 410 “ another 5% over the flats in Tsing Yi up for sale at a sq ft, for HK$363 million or discount under the My Home Purchase HK$885,000 per sq ft. The sale next 12 months. Plan and speeding up the approval marked a new per-sq-ft price-high for process for pre-sale flats. We believe retail properties in Kowloon, in terms the increase in supply will contribute of net floor area. to the healthy growth of the market in the long term.