While Hong Kong’s economy improved steadily over 2016, the property market faces new challenges in 2017 as a new global order takes shape. We are optimistic about Hong Kong because economic conditions in the APAC region are generally healthy, continuing inflows of mainland Chinese capital should support the investment market, and in our core scenario Hong Kong interest rates rise gradually and moderately. However, prospects for Asia are clouded by the upturn in US interest rates and the likely more protectionist trade policies of the new US administration. If US growth exceeds forecasts and US interest rates rise more rapidly than expected, Hong Kong may see an earlier and sharper return to positive real rates than we currently assume. The latest Colliers International Hong Kong Property Research Reports highlight the findings and projections for different property sectors in Hong Kong.
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.
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.
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.