Hong Kong, 19 October, 2016
– According to Colliers International, Hong Kong’s economy is showing more signs of recovery. Based on the latest GDP figures, the import/export trade, accommodation and food services, and construction sector have all recorded positive growth. However, the decline of wholesale and retail sector continues with lower tourist arrival numbers and retail sales for January – August 2016. As the economic outlook has become more positive, so overall sentiment for Hong Kong’s property market has improved. The latest Hong Kong Property Research and Forecast Report Q3 2016 highlights the findings and projections for different property sectors in Hong Kong:
Office – Stagnant demand puts pressure on rental growth
Demand remains firm on Hong Kong Island and rents are stable. However, we see signs of increasing cost consciousness on the part of large tenants, and with rents already softening in Kowloon, overall rental growth turned negative in Q3 for the first time since Q4 2014. Vacancy rates edged up marginally in the CBD and Kowloon. Over the next couple of years tenants looking for incentives from landlords and attractive rents should consider upcoming office space in Kowloon East, Island East and Wong Chuk Hang.
Residential – Residential market rebounds as buyers shake off economic jitters
The improvement in market sentiment driven by greater incentives offered by developers and prolonged negative real interest rates stirred up renewed buying interest in residential properties in Q3 2016. Home prices regained momentum with luxury residential prices increasing by 2.2% QOQ; meanwhile, mass residential prices saw higher growth of 4.3% QOQ. Colliers expects home prices may now not fall this year, but rather remain more or less flat for luxury properties and rise in the mid-single digit range for mass market housing. However, affordability remains very stretched and eventual increases in interest rates are a risk. For 2016 as a whole, rental growth for luxury properties should see a mild decline of 2.0% after a solid 9.7% increase last year.
Industrial - More challenges for landlords amid a tenant market
The warehouse and logistics industry ought to be encouraged by an increase in total exports (+0.8% YOY) in August; however, retail sales slid at a double-digit rate in the same month. As a result, warehouse demand has been softening and is likely to be weak amid the sluggish retail and trading market over the rest of 2016. Landlords of industrial buildings have been offering more properties for sale with flexible price terms.
Retail – International brands cash-in on falling retail rents
A further slowdown in visitor arrivals and structural changes in mainland consumer behaviour continued to squeeze retail sales across the board. Nevertheless, the spending power of the rising middle class remains firm given a healthy employment market and steady wage growth. Retail malls are catering more to local demand by promoting fast fashion, activewear, affordable luxury fashion, cosmetics and beauty brands, as well as overseas food and beverage operators. Rent of prime street shops has dropped by 9% so far in 2016 which is in line with Colliers’ projection of a decline of 10% for the year as a whole.