In the past week, we saw a notable luxury residential transaction – a flat at Mount Nicholson that sold for HK$140,800 per sq. ft. It sets a record in Asia for the most expensive flat in terms of square footage. Commenting on this transaction, Jason Fung of Valuation & Advisory Services expects the outlook of the luxury residential market to remain bullish. Also in this Weekly Snippet, Niall Rowark of Office Services provides an in-depth analysis of the three indicators showing recovery in Central for the commercial office sector.
Mount Nicholson sets Asian record for luxury residential
Sentiment in the luxury residential sector has been positive since the second half of 2020, particularly for flats. One notable transaction came from the Mount Nicholson development on the Peak, which was tendered for sale on 5 November by Wharf and Nan Fung. The 4,544 sq. ft. unit (Flat D on 16/F Block D) which includes three parking spaces cost HK$639.8 million, or an average HK$140,800 per sq. ft., making it the most expensive residential property in Asia.
The unit price per sq. ft. is 3.5% higher than the previous Asian record set by CK Asset’s 21 Borrett Road in February 2021, a 3,378 sq. ft. unit, that also included three parking spaces, selling for HK$136,000 per sq. ft.
Luxury residential has become attractive to affluent buyers given the higher unit rates and the rapid growth in transaction volume. The record-breaking sale demonstrates the market’s resilience and is expected to continue amid the potential border reopening and scarce new supply in the exclusive neighbourhood.
It also needs to be noted that there is a new double-storey penthouse unit in Mount Nicholson that will be launched this quarter. We anticipate that it will attract sizable attention from both mainland and local buyers, given the rising market confidence. This overall market sentiment suggests now would be a good opportunity for developers to release their luxury stock, given the strengthening market demand.
Three indicators the office market is near the bottom
There are three indicators in the office sector that can help understand the health of the market: vacancy rates, net take-up and Grade A1 rents.
Whilst vacancy rates and net take-up are linked, a deeper analysis shows an almost 1% (7.9% down to 7.0%) drop in vacancy between April and August this year within Central. This is backed up by the district’s net take-up, an indicator of demand, being positive for Q2 and Q3 2021; the first consecutive quarters of positive net take-up since Q2 and Q3 2018. These two positive indicators are initial signs that we have begun to see recovery in the market.
The final indicator is Grade A1 rents. Prime buildings in the CBD have begun to see rents slightly edge up. Whilst only a 3% and 0.1% increase between April 2021 and September 2021 and YTD, respectively, this increase is an additional sign that recovery is happening.
In a dropping market, prime buildings are the first to drop. Similarly, in a recovery, these top-tier assets are the first to show signs of increasing rents. With this increase, combined with the vacancy/net take-up indicator, Q4 2021 and Q1 2022 will likely see a recovery in the Grade A commercial office space.