Hong Kong property market: strong enough to face the challenges of the new global order
Hong Kong, 25 January, 2017 – While Hong Kong’s economy improved steadily over 2016, the property market faces new challenges in 2017 as a new global order takes shape. We are optimistic about Hong Kong because economic conditions in the APAC region are generally healthy, continuing inflows of mainland Chinese capital should support the investment market, and in our core scenario Hong Kong interest rates rise gradually and moderately. However, prospects for Asia are clouded by the upturn in US interest rates and the likely more protectionist trade policies of the new US administration. If US growth exceeds forecasts and US interest rates rise more rapidly than expected, Hong Kong may see an earlier and sharper return to positive real rates than we currently assume.
According to Colliers International Hong Kong’s Property Research Reports Q4 2016, office vacancy remains relatively stable across all submarkets, while large occupiers are considering relocating to Wong Chuk Han and Kowloon East. Residential sales volume decreased compared to Q3 2016 as expected; however, prices remained stable. In the industrial sector, sustainable demand from the logistics sector and the limited supply of quality new warehouse space look set to support positive rental growth. In the retail market, “retail-tainment” continues to thrive in the shifting landscape from tourism to local consumption”, said Daniel Shih, director of Research. The following highlights the findings and projections for different property sectors in Hong Kong:
For the first time since Q4 2014, the overall rental growth turned negative with a - 0.4% growth reaching HKD 72.2 per sq ft in Q4 2016. Vacancies remained stable across most submarkets with improved take-up. Significantly large new supply of office space in Kowloon East will contribute to marking a turning point in Hong Kong's office market in this year. The quality office space with large floor plates at a significant rental discount to the options available on Hong Kong Island will create opportunities for large occupiers in and around the CBD to consider cutting costs and to consolidate their operations at a single location by relocating to Kowloon East. On the other side, the opening of the South Island MTR line positions Wong Chuk Hang as a low-cost fringe CBD area, which could see increased take up and rental growth in 2017.
Warehouse demand remained stable amid the recovery of export and container throughput. Total export increased by 3.1% YOY, the first positive growth since Q2 2016. Container throughput increased by 12.2% YOY, which ended the consecutive decline since Q3 2014. Despite softening demand from third party logistics and smaller tenants, the changing dynamics of the domestic retail market has been supporting mid-range retail logistics and warehousing space demand. With sustainable logistics demand and limited supply, Colliers expect rent to be stable and increase up to 3% in 2017.
In November, overall residential price index surpassed the peak level reached earlier in September 2015 by 0.2%. The new stamp duty had an immediate cooling effect on transaction volume but price growth remained steady. The residential market is facing more challenges in 2017, with worsening demand side factors and increasing new supply. Rent for luxury private residential units slid 0.5% QOQ pressured by declining demand for ultra-luxury units in traditional luxury districts. The primary market should hold price levels supported by strong end-user demand. We expect home price to increase moderately at 0-5% in 2017 with the stamp duty continue to restrain transaction volume and the rising interest rates dampening market sentiment.