1) Flexible workspace continues its rise in Hong Kong
The recent deal for Regus’ Spaces brand taking up 20,000 sq ft in Causeway Bay and Garage Society expanding its reach to Sai Ying Pun with its third Hong Kong location further demonstrate the appetite for take-up by Flexible Workspace operators in Hong Kong. These two deals take us to over 280,000 sq ft in transactions by Flexible Workspace operators in 2016. We believe the take-up will continue due to increasing demand from MNC’s for flexibility and investment in to tech start-ups.
Flexible working operators will take up 475,000 sq ft of office space under new leases in Hong Kong in 2016 by our estimates, then this year they will occupy space equivalent to 1.3% of the total office stock in the core and fringe CBD areas of Hong Kong. While this may not sound like a high proportion, at the margin it should be sufficient to ensure that demand for office space remains very firm. In turn, this factor should ensure that vacancy levels remain low and ultimately underpin rent levels.
2) Guangdong tourist tax refund offers
In southern China, Guangdong province, excluding Shenzhen, is launching a tax refund service for overseas tourists, including those from Hong Kong and Macau. According to the Department of Finance of Guangdong Province, tourists who stay in Mainland China for less than 183 days will be entitled to a 11% rebate on goods bought with value-added tax (VAT) at designated department stores, while 2% of the tax will be deducted as a handling charge. The minimum purchase is RMB500 (USD75) a day. The refund is valid only when the purchase is made within 90 days of departure. Tourists can claim the refunds from Guangzhou Baiyun International Airport, Guangzhou Nansha Port and Jiuzhou Port in Zhuhai City. Other ports and stores will be added gradually. (Source: InsideRetail Hong Kong)
Valuation and Advisory Services view
In China, the Guangdong province has recorded the largest number of foreign tourists. It used to be quite common that the final destination of foreign tourists was Hong Kong for one or two days of shopping. Due to this new tax refund scheme, Hong Kong will partly lose its competitive edge as a tax free shopping paradise. This will add further pressure to the Hong Kong local retail market.
3) Small-to-mid sized tenants and semi-retail tenants remain active
Although sizable relocations have been limited so far in 2016, small-to-mid-sized relocations have been relatively active in comparison. We expect to see this trend to continue until the end of this year. Further to our Hong Kong Market Intelligence Report from last week, semi-retail tenants in particular have been expanding in prime locations in Kowloon and are willing to take up multiple units within the same building to fulfil their expansion requirements. This flexibility offered by these tenants has definitely helped landlords to fill up their spaces, not to mention the fact that they offer higher rental affordability than traditional office tenants. Buildings such as Miramar Tower in Tsim Sha Tsui have been capitalising on their prime locations and successfully securing some new transactions in the recent weeks.