1) Hong Kong developers to focus on agricultural land bank and smaller parcels
Sun Hung Kai Properties has completed its largest land premium negotiation in the amount of HKD12 billion (USD1.2bn) for one of its projects so far, occupying 800,000 sq ft (74,300 sq m) of land in Sai Kung. The project, with an estimated GFA of 4.8 million sq ft (445,900 sq m), will provide 4,700 new units. The group has been working on this project for more than 20 years. Meanwhile, a local developer, Manhattan Group, has won the latest government land tender in Tai Po for a total value of HKD323 million (USD41.3 million). The development site has a size of 82,452 sq ft (7,660 sq m) with a total GFA of 58,664 sq ft (5,450 sq m). (Source: Hong Kong Economic Times, 12
ASEAN has become the second largest trading partner of Hong Kong. The new agreements will further enhance Hong Kong’s “super-connector” role in the OBOR region, in which ASEAN countries are forming an integral part of the OBOR initiative. In addition, the new FTA will enhance Hong Kong’s gateway position for more outbound investments from the Greater Bay Area into ASEAN countries and vice versa. We expect that the new FTA will have a positive effect on Hong Kong’s office market, with more companies from ASEAN countries establishing a presence in Hong Kong while expanding their businesses in China.
2) Rebounding tourist numbers give rise to increased leasing activity of cosmetics shops
For several years, Bonjour Hong Kong had leased shop 5 and 6 at 68-88 Canton Road in Tsim Sha Tsui. The street level shop, covering an area of 1,782 sq ft (166 sq m) was leased to Bonjour for a monthly rental of HKD3.3 million (USD425,000) during the retail market peak. Last year, Bonjour extended its lease through a short-term lease agreement, after the landlord reduced the monthly rental to HKD1.2 million (USD155,000). Last month, Sa Sa Cosmetics has taken over the premises for a monthly rental of HKD1.3 million (USD166,000); an increase of 8.3% compared to Bonjour. The new rent translates into HKD730 (USD93) per sq ft, up from HKD673 (USD86) per sq ft. Despite the recent increase, the new lease trades at a discount of 60% compared to 2014. Last month, Sa Sa has also leased the G/F and part of the 1/F at 10 Granville Road in Tsim Sha Tsui, spanning 7,500 sq ft (697 sq m), for a monthly rental of HKD648,000 (USD82,800), HKD86 (USD11) per sq ft. (Source: HKET
, 12 September 2017)
Retail sales of the medicine and cosmetics sector have shown considerable growth, rising 3% YOY in July and 2.8% YOY in the period from January until July 2017. This year’s upswing in retail sales of this subsector has led to more leasing activity of some established brands and new brands entering the market. For example, a French brand, L’Officine Universelle Buly 1803, has launched its first shop at G/F, 20 Wyndham Street in Central and John Masters Organics from the US has recently opened its first branch in Harbour City. Although local consumption demand is rising, the sector still depends heavily on mainland Chinese tourists, with 76% and 68% of the total sales value generated by this group in 2015 and 2016, respectively. With Chinese visitor numbers having increased 2.6% YOY in the first seven months of this year, we expect leasing activity to pick-up further and rents starting to recover more widespread in 2018. (Census and Statistics Department, 29
August 2017, InsideRetail, 10
August and 15
3) Co-working office firm ‘Spaces’ signs largest rental deal this year in Hong Kong Central
Spaces, an Amsterdam-based coworking operator, has committed to lease the whole block of Sun House at 90 Connaught Road in Central for expansion. Renting 77,000 sq ft (7,153 sq m) in the building, it will mark the largest leasing transaction in terms of area in the business district this year to date. With its pre-lease of 3/F and 4/F in Lee Garden Three in Causeway Bay, Spaces will, in association with the business centre leader Regus, occupy over 100,000 sq ft (9,290 sq m) of office space in Hong Kong. (Source: HKET
and SCMP, 18 September 2017)
Major expansions of coworking spaces this year include the latest lease in Sun House, WeWork’s lease in LKF Tower and the lease in EIB Centre by naked Hub. Expansions have been concentrated in non-Grade A buildings in prime locations, due to the proximity to clients and lower rental costs. Taking up an entire block allows them to refurbish the buildings to fit their requirements. We expect coworking operators to face stronger competition from traditional business centres that have been expanding their coverage to coworking spaces, given their strong relationship with major banks and MNCs which have been occupying their serviced offices. The growing PRC workforce offers a strong business potential for PRC coworking operators in Hong Kong. Following the establishment of naked Hub, the Beijing-based coworking operator URwork has reported that Hong Kong will be part of their overseas expansion plans. While coworking operators currently occupy less than 2% of the total Grade A office stock, their expansion into Grade A offices is possible once their client base matures, or by expanding into Grade A buildings located in non-core districts, offering more favourable rents than the CBD.