1) Hong Kong’s economic growth in Q3 meets expectations
The Census and Statistics Department has announced that the Gross Domestic Product (GDP) grew by 3.6% YOY in real terms in Q3, compared to a 3.9% growth YOY in Q2. On a seasonally adjusted QOQ comparison basis, GDP increased by 0.5% in real terms in Q3. Broken down into major GDP components, private consumption expenditure continued to rise in Q3 by 6.7% YOY. On the other hand, total exports of goods increased 5.5% YOY while the import of goods increased by 6.1%. Meanwhile, exports and imports of services rose by 3.7% and 1.5%, respectively. (Source: Census and Statistics Department, 13 November 2017)
Benefiting from a global economic upturn and the recovery of inbound tourism, external trade and retail sales have been growing visibly throughout 2017. Besides, Hong Kong’s equity market has reached a ten-year high. Given positive wealth effects and the global economic upturn, we expect the growth to remain strong in the next few quarters, which should support the property market. Looking forward, faster-than-expected interest rate hikes in the U.S. could change the market’s optimistic sentiment. However, Oxford Economics is one forecaster which currently assumes that Hong Kong will not return to positive real interest rates until early 2020. The persistence of negative real interest rates should continue to support investment activity in Hong Kong and benefit the overall economic growth in the coming two years.
2) Alibaba’s Double 11 breaks new sales record - with Hong Kong ranked as second largest cross-border buyer
China’s Alibaba Group outperformed its 24-hour Singles’ Day sales record from last year, reaching a total gross merchandise volume (GMV) of RMB168 billion (USD25.3 billion), a 39% increase compared to 2016 and nearly four times the combined online sales of Black Friday and Cyber Monday in the U.S. 90% of the overall GMV was generated through mobile devices. According to the news, Hong Kong was ranked second after Russia - among the top countries and regions buying cross-border from Mainland China by GMV, followed by the U.S., Taiwan and Australia. To further push expansion in Hong Kong, Macau and Taiwan where the 11.11. shopping festival was first introduced last year, Alibaba has offered free shipping to those regions. This year’s main feature was to provide shoppers with a new retail experience through nearly 100,000 smart stores and pop-up stores which seamlessly integrate online-offline shopping experiences. (Sources: Alibaba.com
12 November 2017)
The growing number of people spending more time online, particularly via mobile devices has led to a progressive digitisation of retail. Brick-and-mortar businesses start to see the benefits of expanding to other sales channels including online shops to better connect with their customers, while an increasing number of pure e-commerce players set up physical stores to offer a better shopping experience. Against this backdrop, we expect to see a rise in retail shops that are offering mobile-friendly online stores, digitised in-store experiences, increased brand engagement through social media as well as more personalised products to meet the changing client demand. Recent statistics from Statista also suggest that Hong Kong’s customers are slowly embracing the benefits of online shopping, with e-commerce revenues in Hong Kong being projected to increase by 58% between 2017 (USD3.7 billion) and 2022 (USD5.9 billion). Given this shift in consumer behaviour, retailers should refine their strategies to stay competitive in this increasingly disruptive environment. (Source: Statista
, October 2017)
3) A positive office rental outlook for Island East
Swire Properties released its third quarter Operating Statement last week, showing positive results on rental performances in its office portfolio. The reversionary rental growth for Pacific Place (+15%), Cityplaza (+8%), Taikoo Place (+3%) and One Island East (+10%) stayed positive. Regarding the actual rent, the latest headline rentals for 1PP/2PP increased from 110-135 in Q2 to 110-140 HKD per sq ft per month. The strong performance indicated that Island East has benefited from limited supply and strong demand from MNCs. (Source: hkexnews
, 10 November 2017)
The new owners of The Center building in Hong Kong Central have not ruled out stratified sales in the future despite some units being held up for owner-occupation. We believe that it will attract more end-users to purchase the property for self-use to hedge against high rental costs in Central if The Center is available for stratified sales. This could increase demand and occupancy in Central which could lead in turn to further rental increment. We should see a spill-over effect to other districts on Hong Kong Island due to MNCs decentralising for reasons of rental savings.
Island East is popular for relocation given that Quarry Bay offers an average rental discount to Central of about 57%. The upcoming completion of the Central-Wanchai Bypass should further enhance the position of Island East, attracting more MNCs to relocate to new Grade A buildings in those districts. However, the vacancy should remain low, as we expect new supply to be taken up quickly. For instance, MNCs such as Facebook and Baker & McKenzie have been reported to be in advanced negotiations to take 100,000 sq ft in One Taikoo Place, which will be the only new supply in Island East in 2018. (Source: Mingtiandi, 30 October 2017)