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Viewing report
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Hong Kong Real Estate Report Q4 2011
Business Monitor International, Sep 2011, Pages: 50
Hong Kong remains a city with strong economic growth and the government there has, like in mainland China, decided to intervene in the residential marketplace to cool escalating prices. A survey by UKbased property broker Savills deemed Hong Kong the world's most expensive place to buy a home. Property market curbs included increasing land supply and raised down-payment requirements for some home purchases and for overseas buyers. House prices have now started to drop.
The strongest commercial sub-sector has been the retail market. As tourists began heading over to Hong Kong from mainland China in 2004, retailers have seen a steady increase in footfall and started opening large stores in the city. The Hong Kong tourist board put the number of mainland tourists going to Hong Kong at 22.7mn in 2010, up 26% from 2009. The office market, however, has seen sales of space drop off. This seems fair when we consider that Grade A office space prices have shot up by nearly 24% in the first seven months of 2011, according to Knight Frank.
Retail space, which was around 10-15% vacant as of mid-2011, looks set to continue to attract tenants. Colliers reports that in the first half of 2011, tenants (particularly fashion brands) outbid others to get the locations they wished for. Hysan Place at Causeway Bay is a new project drawing lots of attention from companies looking for large space. Its neighbourhood is benefiting and rents are growing around it. New supply seems limited, so much so that Wharf is considering remodelling its UA Cinema – on the ground floor of Times Square, Causeway Bay – into high-end retail space.
Our in-country sources anticipate that rents for office space are likely to increase slightly in all subsectors over the second half of 2011. Our sources are – at this stage – looking for rents to increase in 2012.
Key Opportunities In The Real Estate Market:
- Hong Kong's retail sales hit HKD31.3bn in June 2011 (according to China Daily), an increase of 29% and the biggest gain in more than a year. Colliers explains that the business district at Central has attracted retail stores, often to the bases of office buildings, and now an additional large mall provides further retail space. Jones Lang LaSalle explains that for retail space (and to some extent the overflow into the hotel sector), the increase of footfall from mainland China is driving international brands to open retail outlets in the city, which is supporting rental growth.
- Land has become more available and somewhat cheaper. Local media reported that a 2.3-acre plot of land auctioned off by the government sold for HKD5.5bn, well below its expected sale price.
- Office supply remains limited. Colliers points out that the total 2011 new supply of office space is around half previous levels. Our local sources put vacancy levels at a low 3-4%, so there is an opportunity here to take advantage as rents look likely to increase in 2012.
Key Risks To The Real Estate Market:
- Hong Kong’s commercial real estate sector has experienced a boom of late, but tenants are now showing that they expect market rents to drop. Colliers reports that in Hong Kong’s office space market, despite sustained positive hiring expectations and buoyant leasing demand , the pace of rental growth dropped significantly from about 13% quarter-on-quarter (q-o-q) in Q111 to just 4% q-o-q by the mid-point of the year.
- Retail space is unlikely to see decent yields for some time to come. Colliers explains that escalating retail property prices have put further pressure on yields and high-quality properties achieved less than 3% in early 2011. Our local sources concur with this and do not see the situation changing in the near future.
- Data from the Hong Kong Monetary Authority reveals that in June 2011 the number of new mortgages agreed in the territory was down 9.4% compared to May. According to Reuters, a total of HKD24bn (US$3.1bn) worth of mortgages were drawn up in June. The total value of those loans was 16% less than the value of May's mortgages.
- The latest FPI investor attitudes report shows investor confidence in Hong Kong dropped from 18 to 15 points by July 2011. Professional Adviser magazine cites high volatility and pressure from inflation as the two main reasons for the drop.
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