1) Hong Kong still the most expensive Asian city for expat executives to rent in

News

Hong Kong remains the most expensive city in Asia for high-level expatriates to rent housing, according to ECA’s 2017 accommodation survey. The average rent for such an apartment in Hong Kong is USD10,461 (HKD81,848), beating Tokyo which is in second place by 20%, Shanghai by 50%, Manila by 65% and Johor Baharu by 93%. The key driving forces increasing Hong Kong’s rents include a slight growth in demand, continued lack of mid-range rental units under the recent continued supply of tiny flats, and a lack of new units in areas near international schools. (Source: SCMP, 16 January 2018)

Research View 

The rents for luxury apartments in traditional districts increased 1.5% year-on-year (YOY) in 2017. However, the mass market surged 8.0% YOY with overall leasing demand remaining strong. This pushed the overall residential rents in Hong Kong up by 7.6% YOY over the first eleven months of 2017 – according to the Rating and Valuation Department. The narrowing rental gap between traditional and decentralised districts should make the former, districts such as the Peak, Mid-levels, and Southside, to remain popular among expatriates. Limited supply remains a major factor driving rental increases, while fast rising housing prices have shifted the demand from investing to leasing. These factors should continue to support leasing demand in Hong Kong, which, for the foreseeable future, should remain Asia’s most expensive city.


2) Profitable alliances between developers and co-working operators

News

The Hong Kong based real estate investment advisor Pamfleet reported to have sold the Bonham Circus office building, located in Sheung Wan, to a consortium of Macau and Hong Kong investors for HKD1.7 billion (USD217 million). Based on a total gross floor area of 88,000 sq ft (8,175 sq m), the unit rate was HKD19,000 (USD2,429) per sq ft. Formerly known as EIB centre, Pamfleet acquired the 29-storey building in August 2016 for a total amount of HKD100 million (USD12.8 million). In a period of less than two years, Pamfleet made a profit of HKD700 million (USD89 million) through asset enhancement initiatives such as renovations, and a tenant mix overhaul by securing a deal with the co-working operator naked Hub as the anchor tenant for 15 floors.  (Source: Mingtiandi, 17 January 2018)

Research View

The overall investment volume for Hong Kong’s office properties reached a record high of HKD83.3 billion (USD10.7 billion) in 2017, up 63% YOY. The high volume was boosted by the investment demand for premium buildings from PRC investors and the investment demand for lower grade buildings from local investors. Co-working spaces have become a good option for investors to upgrade their properties and secure a long-term lease in their buildings. According to Charles Ng, Associate Director-General of Investment Promotion of InvestHK, the number of start-ups in Hong Kong has increased by 16% YOY in 2017. Supported by a growing start-up community, co-working spaces should continue to expand and benefit the investors of lower grade office and commercial buildings. Office investments should stay popular in 2018.



3) Cautious optimism among jewellery and watch brands amid positive seasonal results

News

The U.S. jewellery and watch brand Tiffany & Co. has announced its latest revenue results from the holiday season, from November to 31 December 2017 total sales rose by 8% YOY to USD1.05 billion (HKD8.2 billion). In the Asia-Pacific region, total sales increased 16% to USD232 million (HKD1.8 billion), due to a 7% increase in comparable store sales, new store openings and an increase in wholesale sales. Tiffany’s management attributed retail sales growth primarily to higher spending by local customers, and particularly noted growth in mainland China, Hong Kong and Korea. Still, while the results are encouraging, new product offerings and improvement of customer experiences are essential for sustainable growth.  (Source: Tiffany & Co. Press Release, 17 January 2018)

Research View

We expect a further recovery of jewellery and watch sector sales, with new branch expansions in 2018 due to the strong market fundamentals. The rebound of tourism and a buoyant stock market have contributed to the notable revival of the high-end retail market; and the demand for jewellery and watch products has led to a stronger sales performance in the H2 2017. Several large jewellery and watch brands, including Chow Tai Fook and Richemont, have shown positive retail sales figures for the third quarter in 2017/18 financial years. Encouraged by a continued upturn of the retail market, several brands have begun to expand cautiously towards the premium streets, supporting high-street rents to rebound in 2018.