Challenging trading and retail environment impact retail and industrial property sub-sectors. On the other hand office space shortages firms up office sub-sector.
BY MAK KUM SHI
makks@thestar.com.my
A view of the Hong Kong skyline showing mostly Mid-Levels residential buildings, Hong Kong, China.
Hong Kong’s property market is seeing price drops in residential properties, readjustments in retail, a firm office sub-sector due to supply shortages, and a subdued industrial sub-sector.
Knight Frank Research indicated that residential sales this March rebounded with more units launched in the primary market and more deals closed in the secondary market, but prices continued to fall.
According to the Land Registry, residential sales volume rebounded 45% month-on-month from the lowest level in 25 years, reaching 17,106.
The rise was attributable to a number of primary project launches after Chinese New Year and a reviving secondary market, with some flat owners willing to cut prices.
As a result, prices fell further, with official figures showing that home prices had decreased for five consecutive months, for a cumulative decline of 11%.
With potential buyers expecting increasing supply and a further drop in home prices, residential sales are expected to fall to around 50,000 units this year.
Although overall luxury home prices are expected to drop 5% this year, prices of super-luxury houses and apartments should remain stable. Mass market prices could drop up to 10%.
A transition in retail
Hong Kong’s retail industry is seeking new elements and angles to rebalance business.
In the first two months of the quarter, both retail sales value and visitor arrivals decreased by 13.6% year-on-year.
With an 18% decrease in mainland Chinese visitors during the period, their decade-long shopping spree in Hong Kong is coming to an end. This has put downward pressure on rents in core retail areas.
Looking ahead, the retail market is likely to continue going through a period of readjustment to reduce its dependency on mainland visitors spending.
As rents drop, it is becoming more affordable for lifestyle brands to take up space in core shopping areas.
Supply shortages firms up office sub-sector.
In the case of the office sub-sector, low vacancy levels persist and rents edged up by 2.1% over Q1 2016 as a result. However, demand remains subdued.
Savills Research shared that vacancies remain at extremely low levels across all of Hong Kong’s major business districts, averaging 2.2% or 1.23 million sq ft.
Grade A office rents edged up in the first quarter of the year by 2.1%, even though demand proved less than buoyant.
In Central, interest from People’s Republic of China (PRC) firms remained muted compared to the last two years, possibly given a poor stock market performance.
In Sheung Wan, the chosen location for many PRC brokerages, little changed during the quarter as a lack of quality space constrained take-up there.
Given the popularity of the area among tech businesses, the district has found itself home to a number of co-working offices.
Wanchai is still popular among non-financial multinationals with regional operations and China-listed entities. Causeway Bay is reinventing itself as a finance, technology, media and telecommunications (TMT) hub.
The result has been strong relative rental outperformance. Rental growth in Causeway Bay has consistently outperformed Wanchai by one to four percentage points per quarter since Q2 2013 after the opening of Alibaba, Apple and Yahoo.
Hong Kong’s Central Business District 2 continues to take shape across a wide geography, which includes Kai Tak, Kowloon Bay, Ngau Tau Kok and Kwun Tong.
On full development, the four districts will host close to 56 million sq ft of Grade A offices among a mix of other uses, including retail and hospitality.
The Government has arguably been a bit slow in pushing this initiative forward but prospects for the area have brightened as plans have recently been announced for the potential tender of two new office sites this fiscal year, one offering the possibility of erecting a landmark tower suitable for headquarter use.
Subdued industrial sub-sector
Industrial investment sentiment remained subdued in Q1 2016. Investment activity slowed in Q1 2016 with no en-bloc deals concluded.
The two-speed market in the warehouse sector saw modern warehouse landlords holding firm on asking rents even though there are increasing concerns over the business prospects of multinational tenants.
The traditional warehouse segment revealed a very different picture, with many small to medium logistics operators forced to downsize or vacate due to the need for cost savings in the face of shrinking business prospects, as well as the reluctance of landlords to adjust rents significantly.
While both modern and traditional warehouse landlords have held firm on asking rents, with rental levels of both segments remaining unchanged in Q1 2016, both are faced with uncertainties in the near future.
The imminent completion of Mapletree Logistics Centre Tsing Yi will bring around 1 million sq ft of physical vacancy to the modern warehouse market, with current asking rents of HK$14 (RM7.08) to HK$17 (RM8.59) per sq ft.
The further erosion of local trading and retail environment may induce more vacancies in traditional warehouses, weakening the hand of landlords.
