Report highlights

Office

Due to softening rents in non-core submarkets, the overall rental growth turned negative. Vacancy across all submarkets remained stable. Investment activity grew with growing interest for small-ticket transactions. Occupiers should consider seeking cost-effective relocation or consolidation options in Kowloon East amid upcoming quality office supply.

Industrial

With logistics demand shifting to larger operators, small freight forwarding companies are entering a difficult year. Growth in third party logistics demand diminished in H2 2016 while mid-range retailers leased more space. Large operators have started to consolidate by relocating operations to warehouses owned by major landlords. With sustainable logistics demand and limited supply, we expect warehouse rent to be stable and increase up to 3% in 2017.

Residential

Buying sentiment in Hong Kong residential property improved steadily over 2016 until the government proposed its new stamp duty policy in order to curb speculative activity. This action caused transaction volumes to slump in December. Chinese developers were active in bidding for residential sites in H2 2016; as a result several sites were sold above market expectations. With demand strong and supply limited, we expect overall home price growth in a range of 0-5% over 2017. However, if US interest rates rise faster than we expect, there is a risk that Hong Kong will return to positive real interest rates earlier than our present assumption of H2 2018. This could hit market sentiment hard.