Hong Kong, 20 January 2016 - According to Colliers International Hong Kong Property Research and Forecast Report Q4 2015, demand for space in Central / Admiralty was mainly driven by mainland corporations and other small-to-medium size companies. Residential sales volumes dropped to a low level as higher interest rates in the United States drove away prospective buyers. Due to the downward adjustment in retail sales, industrial sector sees weakened demand and retail rents will continue to drop.
The following highlights the report’s findings and projections for different property sectors in Hong Kong:
Mainland corporates continue to expand into Hong Kong in the last two years, which has pushed the vacancy rate in Central and Admiralty down to just 1.7% in Q4 2015. On the back of sustained demand and the low vacancy rate, rents in Central and Admiralty increased 5.2% quarter on quarter (QOQ) in Q4 2015. Colliers anticipates rental growth in Central and Admiralty will continue to outperform other districts over the near term as more and more mainland corporates flow into the city.
The demand for office premises in Tsim Sha Tsui and Kowloon East from sourcing and trading companies will remain soft. Nevertheless, the demand from insurance companies will provide some support for the performance of rents in Tsim Sha Tsui and Kwun Tong. Kowloon Bay will be the weakest link in 2016 due to an oversupply issue.
Luxury prices witnessed a mild decline, down 0.5% QOQ in Q4 2015, resulting in full year growth of 6.2%. Rents for luxury residential properties rose 1.3% QOQ in Q4 2015, resulting in full year growth of 9.7%.
Colliers anticipates a soft landing in home prices after a seven-year boom that has seen prices rise 192% since 2009. The likelihood of a dramatic falloff in prices following 2015’s all-time high seems remote, as excessive liquidity is still prevalent throughout the global economy.
Colliers predicts that mass residential prices will slide 10% in 2016, with luxury residential prices subject to a greater decline of 15% for the year. Rental growth for luxury properties is expected to soften to 6% in 2016.
The performance of the two major drivers of demand for warehouse premises, local retail sales and total exports, remained weak over the course of the review period. In Q4 2015, rents for ramp-access warehouse space inched down 0.3% QOQ while those for cargo-lift-access warehouse space stayed flat.
The boom in e-commerce has induced new demand for warehouse premises in the city. A group of logistics operators see cargo-lift-access warehouses as cost-effective substitutes for ramp-access warehouse space. In view of sustained demand from end users, Colliers expects that the rental performance of cargo-lift-access warehouses will be more resilient compared with their counterparts.
Hong Kong retail rents in the traditional top four shopping locations in Hong Kong decreased by another 5.0% QOQ in Q4 2015, resulting in a full year decline of 23.7%. Colliers expects a continuous downward trend in the retail market, as thinning crowds of shoppers force brands to look for cheaper alternatives, rents of prime high street shops will decline by another 10% in 2016.
On the other hand, mass market retail brands, such as fast fashion, active wear and affordable cosmetics, are expected to fill the space vacated by upscale brands. With the gradual return of mass market retailers to prime shopping areas, there will be a change in the landscape of major shopping streets, which results in a healthier tenant mix.