1) Weakening US dollar will support local property market

News

Most emerging Asian currencies strengthened as the dollar weakened and touched a more than two-and-a-half year low against the euro after a gathering of central bankers in Jackson Hole, Wyoming. The dollar stumbled after Federal Reserve Chair Janet Yellen made no reference to US monetary policy in her speech at the Jackson Hole Economic Policy Symposium, which disappointed investors who had hoped for hints on the Fed's plans for interest rates. The People's Bank of China raised its yuan midpoint to 6.64 per dollar, its highest since August 16, 2016, reflecting broad weakness in the US currency in global markets. (Source: The Economic Times, 29 August 2017)

Research View

The weakening US dollar and moderating expectations for further interest rate increments should further support Hong Kong’s property market as it will take longer than expected for real interest rates in Hong Kong to move back into positive territory. Despite heavy bidding by Chinese developers for residential land sites in Hong Kong earlier this year, the appreciation of the renminbi and the Chinese central government’s new restrictions on overseas real estate investments may limit further Chinese investment in Hong Kong in the near term. We thus expect the property investment market to remain active for the rest of 2017, dominated by local investors and institutional funds. Owners of large ticket trophy properties targeting PRC investment transactions will find it difficult to offload their assets until there is a clear policy change from the Chinese government.

2) WeWork expands into Kowloon East

News

WeWork has agreed to pre-lease a whole floor at low zone in Mapletree Bay Point, a new Grade A office building in Kwun Tong to be completed in H2 2017, for a reported unit rent of HKD25 (USD3.2) per sq ft per month. Based on the gross floor area of about 36,000 sq ft, the monthly rent will be around HKD900,000 (USD115,700). WeWork’s debut in Kowloon follows the company’s expansion on Hong Kong Island. Together with its new lease in LKF Tower in Central which was reported last month, the Kowloon office will be WeWork’s fourth location in Hong Kong after entering the market in 2016. (Source: Hong Kong Economic Times, 25 August 2017)

Research View

Following the expansion of foreign coworking operators into Asia, in the first half of this year Asian-based coworking operators have also been actively expanding across the region. In addition to large contributions by investors to support their domestic and overseas expansion, another major expansion strategy of coworking operators are mergers which help to widen their business communities and ensure demand for more physical space. As large coworking operators generally have costly fit-outs and desire longer lease terms, building quality becomes more important as a factor for choosing offices. We expect that more operators will be interested in Kowloon East for expansion as new Grade A office space in the district is available at a discount of nearly 50% to the average rent of Grade B buildings on Hong Kong Island.

3) Retail sales reach highest growth rate since 2015

News

In July, retail sales rose by 4% YOY to a provisionally estimated value of HKD36.0 billion (USD4.64 billion), representing the highest growth rate since February 2015. Based on a provisional estimation, the retail sales value for the first seven months of 2017 remained virtually unchanged compared to the same period last year. The growth was supported by robust local consumption and further improvement in tourist arrivals. Most retail sectors recorded a positive growth, led by the jewellery and watches sector, which jumped 12.9% in July YOY. Apparel, medicines and cosmetics as well as food, alcoholic drinks and tobacco rose by 1.6%, 3.0% and 4.9%, respectively. Local consumer sentiment is expected to remain optimistic under favourable job and income conditions. However, the near-term retail sales performance will also depend on the recovery pace of inbound tourism. (Source: CSD, 29 August 2017)

Agency View

There is great interest in prime street retail space on Russell Street and Kai Chiu Road in Causeway Bay, reflecting the positive sentiment in the market. There are currently three key availabilities with shop sizes of between 500-2,000 sq ft (46-186 sq metres), which have an approaching lease expiry, are operated under short-term tenure or are vacant. The asking rental by the respective landlords is maintained at around HKD0.8-1.3 million (USD103,000-167,000) per month for a permanent lease. A number of reputable international brands have expressed serious interest in these spaces which previously fetched monthly rentals of HKD2-3 million, to mark a presence in this superb prime retail location. The activity and serious interest by retailers is solidifying the confidence in the pick-up of Hong Kong’s retail market.

Research View

Positive market sentiment with a strong local consumption and improving tourism numbers have contributed to the high retail sales growth in July. Especially the jewellery and watches sector, one of the major contributors to the overall retail sales value has reached its highest growth rate since August 2013. Although total and mainland Chinese tourist arrivals decreased by 1.9% and 3.4% YOY, respectively in June, the numbers of overnight visitors, both in total and from mainland China increased by 1.7% and 0.6% YOY, respectively at the same time. The overall result for the first half of 2017 shows that total and mainland China tourist numbers increased by 2.4% and 2.3%, respectively, compared to H1 last year. Rental decline has been slowing down in high-street retail locations as a result of these developments. We expect retail rents to stabilise amid robust demand in prime retail space backed by strong local consumption and further improvement of inbound tourism.