Report highlights

Office – Low vacancies on Hong Kong Island supported the overall rental growth

Leasing momentum slowed with renewal dominating the overall market in Q3. PRC firms further expanded their footprints in Central and demand from banks and legal services supported the growth in Central. With MNCs becoming more cost-conscious, demand should remain stable amid positive business outlook. Central/ Admiralty, Wanchai/ Causeway Bay and Island East all showed negative take-up in Q3 while Wong Chuk Hang has seen an increase in take-up of +19,000 sq ft. Kowloon East vacancy rate was down to 8.5%, the lowest of the past four quarters while the New Territories has recorded the highest vacancy rate since Q1 2016 at 7.6%. The overall Grade A office rents were stable in Q3 which increased 0.4% QOQ. However, Kowloon East will face strong pressure from the large new supply in 2018. Colliers expects the overall rent to increase 3-4% next year amid the positive business sentiment.

Industrial – Occupiers remained cost-conscious

Hong Kong’s economy has maintained its strong momentum in Q3 with combined value of total exports in July and August increased further by 7.3% YOY. Air cargo throughput and container throughput were up 10.1% and 4.9% respectively on year on year basis. However, MNCs and logistics operators remained cost-conscious with relocation dominating leasing activities amid the stable market. Tsing Yi was the top destination for occupiers relocating from Kwai Tsuen area. The overall warehouse rent showed moderate growth, up 1.0% QOQ and Colliers expect warehouse rent to increase 3-5% in 2018 given the positive outlook and no new supply. Investment market was active across all property sectors in Q3. The total consideration of industrial property transactions (over HKD 30 million) increased 13% QOQ to HKD6.1 billion, being the strongest quarter recorded. The market reported five en bloc transactions in Q3, with a total consideration of HKD4.4 billion supported by two major transactions in Wong Chuk Hang area.

Residential – Despite softer demand, price stayed firm

Hong Kong residential price has risen for 17 consecutive months as of August 2017. However, the number of transactions in the primary market has declined 26.7% QOQ to 4,577 units, while the secondary market has declined 32.1% to 8,581 units. The market stayed resilient with overall home prices increased 0.8% from June, despite slower than the 4.7% QOQ increase in Q2. Colliers expects that residential prices in Hong Kong will not see significant pressure until late 2018, property prices should still increase in 2018 until Hong Kong’s real interest rates turn positive in late 2018 at the earliest. The Starter Homes scheme mentioned in Mrs Carrie Lam’s Policy Address will not have a significant impact on the private housing market since implementation takes time with the shortage of suitable and available land.

Retail – Personalised digital customer engagement is the competitive edge

With robust consumption and rebound in tourists, the retail market has continued its recovery path in Q3. Combined retail sales grew 3.3% YOY in July and August. Despite the fact that sales of electronic goods and apparel dropped by 2.4% and 0.4% respectively, the jewellery and watch sector jumped 10.2% YOY. In Q3 2017, overall high-street rents of major retail districts dropped 10.5% YOY. Colliers expects rental adjustments to further moderate in Q4 2017, with the overall prime-street rents expected to decrease by 5% for 2017, followed by a modest recovery of 3-5% in 2018. As e-commerce revenues are picking up and consumers spend more time online nowadays, brands are increasingly developing digital engagement strategies with personalised content to achieve customer satisfaction and establish brand loyalty.