1)  Decentralisation of office market will continue with keen interest in new commercial site in Aberdeen

News 
The government has received 24 bids for a commercial site in Aberdeen with analysts saying the response reflects developers’ confidence in the market outlook. The 19,000 square-foot site in Wong Chuk Hang is likely to fetch between HK$1.42 billion and HK$2.4 billion, or HK$5,000 to HK$8,000 per square foot. The total gross floor area of the commercial site will be as much as 284,900 sq ft. The particulars also require the developer to construct another building covering 30,000 sq ft as a cultural and arts centre as well as office premises. Hong Kong companies such as Chinachem Group, K Wah International, Emperor International and Sino Land were among the bidders. (Source: SCMP, 7 October, 2016)

Agency view 
With the growing cost concern, we have witnessed more and more relocation movement by occupiers from Hong Kong Island to the Kowloon side. AB Concept, an architecture firm, has decided to move out from Causeway Bay to Cheung Sha Wan to lease a floor in Global Gateway Tower while an IT firm, Oracle, is in the final stage of leasing multiple floors in K11 in Tsim Sha Tsui.  We believe that the trend of decentralising will keep growing and occupiers will focus on buildings with good quality and value.

Research view 
Given that the office rent in Central/Admiralty continues to edge upward, more companies have been considering splitting office or wholesale relocation options. New quality office buildings with bigger floor plates and the MTR expansion into decentralised areas should attract strong interest from tenants in core districts. However, with a concentration of new supplies, office rents at decentralised locations will face more pressure. We expect the rental gap between core and non-core areas will expand further.

2)  Hong Kong home sales reach four year high with a frenetic buying spree for small flats

News 
Hong Kong developers pushing new home projects at lower prices stirred up a frenetic buying spree for small flats in September, boosting total residential transactions to a four-year high. Hong Kong’s Land Registry said overall property deals in the city, including flats, shops and car parking space, rose 27.9 per cent month on month to 9,504 in September and recorded 73.8 per cent growth year on year. Total transaction value for homes amounted to HK$55.96 billion in September, the highest level since July 2014.  (Source: SCMP, 7 October, 2016)

Agency view 
The latest trend in residential market shows that the small sized apartments are getting popular. Developers and owners are eager to utilise every square foot for their small properties. An open kitchen is certainly a popular choice nowadays especially for new buildings like “Imperial Kennedy” in Kennedy Town. More people, like young couples, will chose to demolish walls for a more spacious home.

In addition, the average home price in Aberdeen has grown by 63% for new developments like “Larvotto” and “Marinella” in the past few years. The expatriate rental market has started to take notice of the imminent opening of South Island MTR Line (East) and the redevelopment of the Wong Chuk Hang area. While lower rentals attract expatriates to this area, it is still not as popular among the foreign community as Mid-levels, Kennedy Town or Wanchai.


Research view  
Overall luxury residential rents saw signs of stabilisation in Q3 2016 but the top-end rental market (over HKD150,000 per month) continued to suffer. Overall luxury residential rents decreased 4.8% between January and September 2016. 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. From a leasing demand perspective, global investment banks continue to face challenges, stoking fears of further layoffs for staff. Meanwhile, non-banking and finance companies have fared better than the banking industry. However, these multinationals are not eager to increase housing allowances considerably, but keeping them steady.

3)  Kerry wins the bidding of the residential site at Beacon Hill, Kowloon

News 

The Lands Department announced that the tender for a site, New Kowloon Inland Lot No. 6533 at Lung Cheung Road, Beacon Hill, Kowloon, has been awarded to the highest tenderer, NMC 6 Limited (parent company: Kerry Properties Limited), on a 50-year land grant at a premium of $7,268.8 million. (Source: The Lands Department, 5 October, 2016)

Valuation and Consultancy Services view  
Beacon Hill AV reached approximately HKD21,200 per sq ft based on this tender. All major developers entered this tender showing that the market is regaining its confidence. Kerry also got another site nearby via government tender with an AV of HKD20,500 per sq ft in early 2015 which suggests modest growth of about 3% on the land price in Beacon Hill over the 18 months. The supply side is likely to play an important role in adjusting the market in the near future and the upcoming significant completions of major private developments and public housings indicate that the residential market will stand still at least for the next three years.

Research view  
As noted above, rental growth for luxury properties should see a mild decline of 2.0% in 2016 after a solid 9.7% increase last year. Global investment banks continue to face challenges, stoking fears of further layoffs for staff. This suggests a slowdown in expatriate arrivals in Hong Kong this year. Meanwhile, non-banking and finance companies has fared better than the banking industry. However, these multinationals are not eager to increase housing allowances considerably, but we expect they will keep them steady. 

ansion from 2H 2017


3)  Office yields likely to be stable over 2016, with expansion from 2H 2017

Agency view (Strata-titled Sales)
In the past week, 4/F at No.9 Queen’s Road Central was sold for HKD370 (USD47) million, or a unit price of HKD 27,000 (USD3,462) per sq ft, with sales and lease back condition. Sales activity of strata-titled offices should remain steady is the near term.

Research View
We expect Hong Kong office property yields to stay at about 3% over most of 2016, and only to start expanding once US interest rates start rising sharply. Despite deteriorating business confidence, we believe capital values in office property will hold up well for two reasons. The first explanation is that real interest rates in Hong Kong (currently about -2%) will stay negative for some time yet, since interest rates in the US – which Hong Kong rates follow closely as a result of the currency peg – look set to rise gradually rather than rapidly. The second reason is the simple fact that too much capital is chasing too little stock in the Hong Kong office property market. However, we expect office sector capital values to start declining in 2H 2017, by which time real interest rates should have returned to positive territory. This change should cause office property yields to start expanding.

Agency view (Strata-titled Sales)
In the past week, 4/F at No.9 Queen’s Road Central was sold for HKD370 (USD47) million, or a unit price of HKD 27,000 (USD3,462) per sq ft, with sales and lease back condition. Sales activity of strata-titled offices should remain steady is the near term.

Research View
We expect Hong Kong office property yields to stay at about 3% over most of 2016, and only to start expanding once US interest rates start rising sharply. Despite deteriorating business confidence, we believe capital values in office property will hold up well for two reasons. The first explanation is that real interest rates in Hong Kong (currently about -2%) will stay negative for some time yet, since interest rates in the US – which Hong Kong rates follow closely as a result of the currency peg – look set to rise gradually rather than rapidly. The second reason is the simple fact that too much capital is chasing too little stock in the Hong Kong office property market. However, we expect office sector capital values to start declining in 2H 2017, by which time real interest rates should have returned to positive territory. This change should cause office property yields to start expanding.