1) Co-working office space filling up new office space in Kowloon East

Agency View

Flexible workspace has been expanding rapidly with the funding support from angel investors and venture capitalists and the increasing demand from tech firms and startups. Large business centres based in Central have been expanding their serviced offices on Hong Kong Island, while the expansion demand from co-working operators has turned to the Kowloon East market due to strong competition. Naked Hub, one of the largest Shanghai-based co-working operators, is expanding its footprints into Kowloon East by leasing about 50,000 sq ft (4,645 sq m) in 133 Wai Yip Street after opening its first Hong Kong office in Sheung Wan. While the expansion of co-working space helps fill up the massive new supply in Kowloon East, the overexpansion of co-working space remains a risk to landlords and developers in the medium term.

Research View

The demand for flexible workspace has been strengthening thanks to a growing number of startups and the emergence of the millennial workforce. According to StartmeupHK, the number of startups and their employee sizes has increased by 24% and 41% respectively in 2016. In addition to the expansion of foreign operators, a local operator, Ooosh, for example, recently announced the leasing of its third office space of 12,000 sq ft (1,115 sq m) in Kowloon East. With the improvement in amenities in the district and a rental discount of up to 70% compared to Central, we expect the market penetration of co-working space operators in Kowloon East to increase further.

2) Increasing number of properties offered for sale amid strong market sentiment

News

Champion REIT has put the Office Tower of Langham Place in Mongkok for sale. With an estimated value of about HKD20 billion (USD2.6 billion), it could be the most expensive office transaction. The unit rate is about HKD28,571 (USD3,663) based on the total gross floor area of about 700,000 sq ft (65,032 sq m). The building is currently almost fully occupied, with a monthly rent between HKD40-50 (USD5.1-6.4) per sq ft. Meanwhile, market rumours that the 745,000 sq ft (69,213 sq m) Octa Tower in Kowloon Bay owned by Nan Fung has been put up for sale. The estimated value of the building is about HKD9 billion (USD1.2 billion) or HKD12,081 (USD1,549) per sq ft. (Source: Hong Kong Economic Times, 7 July 2017)

Agency View

The market is being well supplied by a number of large tickets sized properties available for sale. Earlier last month, Excelsior Hotel in Causeway Bay, owned by Mandarin Oriental, was also being put to the market with an asking price of HKD30 billion (USD3.8 billion). With a developable gross floor area of 684,019 sq ft (63,548 sq m), the indicative price represents an approximate accommodation value of HKD43,858 (USD5,628) per sq ft. We believe the transaction volume of the commercial property market to be boosted by the successful sale of these large en bloc buildings in H2 2017.

Research View

According to the Rating and Valuation Department, the number of office property transactions reached 810 with a total value of HKD13.35 billion (USD1.7 billion) during the first five months of 2017, surpassing the same period last year by 154% and 209% respectively. Office prices on Hong Kong Island have been driven by strong market sentiment partly stimulated by the record sale of the Murray Road Car Park site, with Wan Chai’s average transacted prices increased the most, by almost 20% YTD in H1 2017. Driven by a positive outlook for the office market, office properties have been popular among all types of buyers, such as developers, private equity funds, investors and occupiers.

3) Optimising utilisation and efficiency become critical for Hong Kong port to regain the top spot

News

Hong Kong port was ranked as the fifth busiest in port throughput in 2016; the city trails behind Shanghai, Singapore, Shenzhen and Ningbo. Outperformed by the mainland ports, Hong Kong logistics hub has been losing its advantage due to the relaxation of China’s laws prohibiting foreign-flagged vessels from moving cargos from one mainland port to another. The automation level in mainland ports has been enhanced by the quick development of technology which could reduce operation cost significantly. The adequate amount of manpower from the younger generation has been energising the development and services of mainland ports. Overcapacity of Hong Kong port and the limitation of space are also the major obstacles for Hong Kong to retain its position as the most competitive port in the region. (Source: South China Morning Post, 1 July 2017)

Research View

Apart from losing share in the regional market and being outpaced by the strong growth of mainland ports, Hong Kong container throughput declined for the past five years, dropping to 19.8 million TEUs in 2016, or 23% less than the volume in 2011. While the utilisation rate of Kwai Tsing Container Terminals, which handle around 80% of Hong Kong container traffic, rose from 75.5% in 2005 to 89.2% in 2014, the growth became critical for Hong Kong ports to retain competitiveness amid their limited capacity and development. In Q2 2017, we witnessed that a few large logistics service providers consolidated and upgraded their operations into quality ramp-access warehouse in core-areas to meet their clients’ needs despite higher rents. While Hong Kong ports should be able to remain the world’s top 10 ports in the next decade, demand for warehouse space and logistics efficiency should increase in the future. Hong Kong should get itself ready by increasing warehouse supply to accommodate the expected growth.