1) Record price for Sheung Wan office property

News

Hip Shing Hong or related parties acquired the whole floor of 34/F or 20,506 sq ft (1,905 sq m) in Cosco Tower in Sheung Wan for HKD638 million (USD59 million) or HKD31,113 (USD2,890) per sq ft. The average price of the transaction was a record high for Sheung Wan. The premises are currently leased to a local securities firm with a monthly rent of HKD1.16 million (USD149,290), resulting in a yield of 2.2%. (Source: Hong Kong Economic Times, 28 April 2017)

Research View

Strata-title office properties remain popular on the Hong Kong Island, especially in the core-CBD and fringe CBDs. In the first quarter, Unit 1-2 on the 14th Floor of 9 Queen's Road Central was sold for a record price of HKD39,570 (USD3,676) per sq ft. The strong investment demand has been driven by occupiers and Chinese investors amid rising rent and low vacancy. Kowloon side has been drawing more attention with major supply coming up. Two floors on a new Grade A office building at 650 Cheung Sha Wan Road have been sold with the building’s naming right to a Chinese company at a record price of HKD259 million (USD24 million) or HKD19,000 (USD1,765) per sq ft, reported by the Hong Kong Economic Times on 24 April 2017. With numerous record investment transactions recorded in April, office price growth is likely to continue for this quarter.

2) Recovery in Hong Kong exports ensures warehouse rental growth

News

According to the external merchandise trade statistics released by the Census and Statistics Department in March 2017, the value of Hong Kong's total exports and imports of goods recorded year on year increases, at 16.9% and 13.0% respectively. For the first quarter of 2017 as a whole, the value of total exports of goods rose by 10.3% over the same period in 2016. Within this total, the value of re-exports increased by 10.4%, while the value of domestic exports increased by 4.9%. (Source: Census and Statistics Department, 25 April 2017)

Research View

The quarterly growth of value of total exports in the first quarter accelerated and was the strongest over the past 24 quarters or six years. Meanwhile, values of port container throughput and cargo throughput, key indicators of Hong Kong’s logistics sector, both recorded double-digit growth in the first quarter. The outlook for exports from Asia and Hong Kong has become brighter recently, as it seems less likely now that the US will seek to impose large tariffs on Chinese exports, risking a trade war. The logistics sector and warehouse demand should benefit from robust economic growth across Asia, especially after China’s continued firm economic expansion in Q1 2017.

3) Five reclamations to meet the demand for residential property in the next three decades

News

A think tank founded by former chief executive Tung Chee-hwa has forecasted that Hong Kong will need 9,350 hectares (93.5 million sq m) of land for residential developments over the next three decades. The researcher suggested five reclamations to meet the demand, which would provide 3,490 hectares (34.9 million sq m), including a 2,200-hectare (22.0 million sq m) artificial island to the south of Cheung Chau for relocating the Kwai Chung container terminal and brownfield operations, and a 200-hectare (2.0 million sq m) extension of Po Toi Island for relocating existing prisons. (Source: Hong Kong Economic Times, 28 April 2017)

Valuation View

Hong Kong relied mainly on reclamation and development of land on the outskirts for increasing residential land supply in the past. However, there have been increasing voices of objection in the society while the government has been facing challenges in utilising these two approaches to increase future supply. The government could encourage the conversion of agricultural land by accelerating the land premium negotiation process. According to the latest annual reports from the top four developers, they have altogether amassed 106 million sq ft (9.8 million sq m) of agricultural land.

Research View

While converting farmland into residential development will involve a complicated planning and land premium negotiation process which could take a considerable amount of time before final settlement, another possible source of future land supply is from brownfield redevelopment. Many of the most successful large-scale residential developments in Hong Kong are in fact redevelopments on brownfield sites, such as Mei Foo Sun Chuen, Taikoo Shing, Whampoa Garden and Southern Horizons. The old residential and industrial buildings could be the major sources of brownfield sites which will boost land supply in the short and medium terms.