Report highlights

Office – Rising demand in both CBD and decentralised locations

The overall rental growth has changed from negative to a 0.4% growth from Q4 2016 to Q1 2017, which was mainly due to the increasing rents in the CBD (0.2%) driven by the demand from Chinese companies, and in Island East (0.7%) and Wong Chuk Hang (3.0%) driven by the decentralisation of MNC occupiers. As rental continues to soar in CBD, companies are increasingly focusing on workplace strategies to maximise office space efficiency in addition to the decentralisation option. Colliers forecasts that overall office rent will continue to rise in 2017. With limited new supply and robust demand, rents on Hong Kong Island will grow by 4% while rents in Kowloon will fall by 7% thanks to the upcoming supply in Two Harbour Square and 33 Tseuk Luk Street.

Industrial – Record high investment with mixed leasing demand for industrial space

The international and local trading environment has recovered in Q1 2017 with total import and export increases. However, the current uncertain retail landscape has put some retailers' expansion plans for their warehouse space on hold. Leasing demand was driven by the consolidation and expansion of mid-range retailers and cosmetics suppliers while luxury and clothing retailers remain more cautious. Meanwhile, industrial building has become a very popular investment option because of the 15% stamp duty imposed on residential properties. The transaction volume of HKD30 million or above increased 79% QOQ to a record high of HKD4.6 billion. Investors see the opportunity for properties to be redeveloped or revitalised into apartments, commercial buildings or modern industrial buildings for leasing purpose. Given the tight supply and strong demand for industrial space, Colliers expects warehouse rent will increase up to 3% in 2017.

Residential – Housing price is likely to remain high thanks to strong domestic demand

Even though the 15% ad valorem stamp duty (AVD) introduced by the government has pushed down non-first time purchase to a monthly average of less than 410 cases from December to February, compared with 1,397 cases from 2015 – 2016, the strong demand in the primary market and low interest rate environment continue to strengthen overall home price by 1.6% QOQ following 11 consecutive monthly increase. Prices of ultra-luxury apartments continue to be strong, but leasing activities remain subdued as MNCs continue to keep their expatriate staff’s housing allowance low. The government’s decision to extend the 15% AVD to buyers of multiple-flat purchases will have a more significant impact on transaction volume than price growth because of strong domestic demand.

Retail – Retail sales likely to remain subdued while m-commerce is on the rise

The use of mobile payment, known as the m-commerce, is becoming more popular among local consumers, recording an increase in a total transaction of more than HKD 1 billion from 2015 to 2016. Statista, a global statistics database, expects the number will reach HKD 21.8 billion by 2021. On the other hand, increasing tourist arrivals failed to boost Hong Kong’s retail sales, which were down by 3.6% during the first two months of 2017, contributed primarily by a 23.6% decline in sales of electronic goods and photographic equipment. Taking advantages of a weak luxury sector, OnTheList, an offline platform for luxury merchandises, has opened its first flagship shop for brands to put excess stock and last season inventories on sale in a controlled environment. Regarding new retail space supply, Colliers expects a total of 410,000 sq ft of new retail space at core areas to be completed in 2017 with a strong focus on lifestyle and F&B concepts.