1) W Square sold for HKD2.85 billion after renovation

News

Wing Tai Properties sold W Square, a commercial building on 314-324 Hennessy Road in Wan Chai for HKD2.85 billion (USD365 million) to Winland Group, a local property investment firm. Based on the GFA of 128,600 sq ft (11,947 sq m), the unit rate was HKD22,152 (USD2,847). Wing Tai Asia, the development division of Wing Tai Properties, bought the property in 2005 for HKD529 million (USD68 million), renovated and renamed it to W Square. The floors from the basement to the 6/F are now providing catering space, and the 7/F and above are for office use. Given full occupancy, the monthly rental income amounted to HKD4.5 million, representing a passing yield of 1.9%. (Source: Ming Pao & hkexnews, 1 February 2018)

Research View 

In Q4 2017, Hong Kong’s office investment market recorded a historical quarter, reaching a total volume of HKD53 billion (USD6.8 billion), up 408% QOQ. Due to robust demand for office investments, the overall Grade A office price surged by 15% YOY in 2017. Moreover, we see sustained activity in the overall property market at the beginning of this year. Five transactions of over HKD1.5 billion have been recorded so far, implying that the heated market sentiment continues and capital remains sufficient in the market. In 2018, Hong Kong’s economy should continue to show robust growth and the low interest rate environment is likely to persist. We remain cautiously optimistic and expect the capital value of office properties in Hong Kong to increase by 5% YOY in 2018.

2) Retail sales of Hong Kong finally return to positive growth

News

According to the Census and Statistics Department, the value of total retail sales in December 2017 was estimated at HKD44.8 billion (USD5.8 billion), an increase of 5.8% over December 2016. In 2017, the value of total retail sales amounted to HKD446.1 billion (USD57.3 billion), representing a rise of 2.2% over 2016. A government spokesman indicated that increasing retail sales in December 2017 reflected the upbeat consumption sentiment amid favourable employment and income conditions. The continued revival of inbound tourism also helped. Retail sales resumed modest growth in 2017, after having declined since 2014 on an annual basis. The near-term outlook for the retail trade stays positive, given the more sanguine economic situation and improving inbound tourism. (Source: Press release Census and Statistics Department, 1 Feb 2018)

Agency View

We have seen an increasing number of parties show interest in existing surrender opportunities in the market across various locations. Potential incoming tenants include new F&B groups, kindergarten/education, and premium skincare/body-care brands who are actively looking at high-streets in key retail districts, as well as newly redeveloped suburban malls.

Research View

Although the December 2017 YOY growth figure was lower than for November 2017 YOY, it is the tenth month of consecutive growth – the longest period since January 2014. The local retail market is finally on its way to a healthy growth path. We expect total retail sales to rise 4-5% YOY in 2018, supported by many favourable conditions including a strong local economy, a full-employment situation, the return of Chinese tourists, and strong RMB. In 2018, we expect overall high-street retail rents to increase mildly by 1-3% YOY. Smaller sized shops, up to 5,000 sq ft (<465 sq m), with a monthly rental below HKD1 million (USD128,100) should remain the most popular choice. 

3) Hong Kong takes title for least affordable housing market for the eighth year

News

Hong Kong was named the least affordable housing market for the eighth year, followed by Sydney and Vancouver, according to a recent study by Demographia, an urban planning policy consultancy. The median price of a home in Hong Kong is 19.4 times the median annual pre-tax household income, up from 18.1 times according to a previous study from Demographia. The study analysed 293 metropolitan housing markets across nine countries, including Ireland, Japan, New Zealand, Singapore, the United Kingdom, and the United States. (Source: Bloomberg, 22 January 2018)

Agency View

The secondary market was active in Mid-levels and Central in January 2018. There was a total of 15 transactions recorded in The Land Registry in January. The highest transaction in Mid-levels Central was the 3/F in Century Tower Block 2, sold for HKD105 million (USD13.5 million), or HKD36,790 (USD4,729) per sq ft based on a net floor area of 2,854 sq ft (265 sq m). The second-highest transaction was Flat 23C in Tregunter 3, sold for HKD69.2 million (USD8.9 million), or HKD29,322 (USD3,769) per sq ft based on a net floor area of 2,360 sq ft (219 sq m). Vendors in this location have become less open to negotiations due to strong investment demand.

Research View

While local demand has been supporting the mass market, mainland Chinese buyers have been interested in purchasing Hong Kong’s luxury residential properties, especially apartments located on the Peak, Mid-levels, and Southside. According to the China Private Wealth Report 2017, jointly published by Bain & Co. and China Merchants Bank, Hong Kong remains the number one destination for China’s High-Net-Worth-Individuals (HNWIs) to invest in. China’s HNWIs population with investable assets of RMB10 million (USD1.6 million) or above increased by 18.3% YOY to 1.87 million in 2017, and Hong Kong’s luxury residential apartment market should benefit from the strong growth of China’s HNWIs population.