Hong Kong, 21 April 2016
– According to Colliers International Hong Kong Property Research and Forecast Report Q1 2016, there was a softer leasing demand in office market. Downward pattern in the home cycles is seen deepened and a slide in price is expected. In the same quarter, sluggish sales were seen not only in luxury segment but also in some mid-market businesses.
The following highlights the report’s findings and projections for different property sectors in Hong Kong:
Grade A office rents remained high in Q1 2016 amid a tight vacancy environment. Despite concerns over global economic slowdown, we think leasing activities will continue to be driven by demand from PRC firms, with some multinational corporations downsizing. We leave our estimates unchanged with projected rental growth of 5.4% in 2016, with Island East district taking the lead at 9.0%, followed by Central (8.4%). In contrast, rents in Kowloon East should see a 3.0% drop. Kowloon East should see stronger take-up than Hong Kong Island due to the sizable volume of new supply, and so can offer major cost savings for occupiers.
Downward pattern in the home cycle deepened in Q1 2016 amid growing economic worries. With negative real interest rates persisting and the pace of interest rate increases likely to be slow, the Hong Kong residential market should stabilise in the near term. However, given severely stretched affordability, slowing demand and rising supply, we expect home prices to slide 10% in 2016, with luxury residential prices falling 15%. While we do not expect a sudden collapse, we think local home could fall by 30% or more over the next three years.
The Hong Kong retail sector faces tough times, with the strong Hong Kong dollar and weakening Chinese tourist arrivals squeezing sales, especially at the high end. In Q1 2016, sluggish sales were seen not only in the luxury segment, but also in some mid-market businesses. Colliers Research reaffirms its prediction that rents and capital values in prime Hong Kong shops will decline further in 2016, down 10% and 24% respectively. We expect investors seeking yield to show interest in mass-market shopping malls, and recommend owners of retail properties to explore new retail concepts and try to attract a broader mix of tenants.