In the latest Weekly Snippet, Wang Cheung of Office Services and Angus Luk of Valuation & Advisory Services share their on-the-ground market observations of the office leasing and residential sectors. Wang sees a return of office space demand in locations such as Tsim Sha Tsui and Mong Kok, and Angus notes property owners with secondary properties are benefiting from the low interest environment and the demand for more spacious homes driven by work-from-home, as they look to upgrade their existing asset.
Office space demand in core locations returns
Cost saving and space optimisation initiatives have driven market movement and boosted new letting activities for office occupiers in decentralised locations like Kwun Tong, Kowloon Bay, Lai Chi Kok and Kwai Chung in Kowloon, over the past two quarters. As we see more stability return to the market, and we progress to the mid-year mark, we have started to see the return of office demand in core locations in Kowloon like Tsim Sha Tui and Mong Kok.
Instead of traditional office occupiers, the latest letting transactions in core locations have been committed by semi-retail trades. Healthcare and wellness service providers, beauty centres and sport centres are keen to let new spaces. Examples of recent sizable take-up by these semi-retailers include: an 18,000 sq. ft. whole floor commitment in The Gateway Tower 2 by a beauty and healthcare group to be run as a medical centre, an 11,000 sq. ft. whole floor commitment in The Peninsula Office Tower by a listed beauty centre operator, and a 7,000 sq. ft. commitment in Grand Century Place by a beauty centre. The market driver is coming from strong local demand for services as current limitations on international travel remain in place, as well as the office rental market reaching a trough which is creating opportunities for occupiers in the market.
Even we have started to see demand return in the market, vacancy level in both Tsim Sha Tsui and Mong Kok sits at around 10%. However, we do expect to see the rental level start picking up in the coming quarter.
Secondary market remains robust
As COVID-19’s impact eases in Hong Kong, residential investors are showing a desire to become more active in the property market which is spurred on by the current low interest rate environment.
The residential property market, particularly the secondary market, performed well in the period between January and 18 June. The “over HK$10 million” secondary residential property transactions saw the biggest percentage increase YOY (+74%). The main driver for this was the New MIP scheme announced by the Chief Executive in October 2019, which boosted demand for larger flats as the buyers could provide as little as a 10% deposit (versus 50% previously), helping them to finance a more expensive property. Another driver for buyers looking to invest is the need for a larger flat due to work-from-home and home learning trends, with typical and existing flats being relatively small.
Though a smaller YOY percentage increase (+40%), the period between January and 18 June has been the largest growth in total transactions (5,240) among the “over HK$5 million-HK$10 million” category. To reboot the trend of owners to replace their existing properties, they have started to pursue three-bedroom rather than two-bedroom flats by selling their existing properties. Flats under HK$10 million with three bedrooms are common in the New Territories. In 2020, and between the period of January and 18 June this year, the top two residential developments (in the secondary market) in the New Territories have been Kingswood Villas and City One Shatin. Both developments have seen substantial YOY growth in transactions of 31% and 26% respectively.
Although new buyers are inclined not to buy studio or one-bedroom flats, these flats will continue to be popular among limited budget investors, as Hong Kong is still one of the most expensive property markets in the world.