- The Hong Kong Grade A office market recorded growth for the third consecutive quarter, with overall net absorption remaining positive at 318,000 sq ft in Q2. Nevertheless, office rents remained under pressure due to the lifted availability rate, dropping 1.5% q-o-q.
- The overall high street vacancy rate stabilized, and rents continued to record low single-digit growth rate across retail districts. Mainland brands are expected to become key drivers of leasing demand in the long term.
- Residential transactions accelerated after the Government lifted all demand-side management measures for residential properties, with the Q2 total transaction number forecasted to record approximately 19,000 units, rising by over 90% q-o-q from the low base of last quarter. Home prices remained under pressure amid the high interest rate environment, declining 3.8% for the year-to-date.
With the Government lifting all demand-side management measure for residential properties in late February, the number of residential transactions rose noticeably in April. However, transactions in May slowed again from April’s high due to a combination of factors. The Grade A office market recorded positive net absorption for the third consecutive quarter, mainly driven by leasing demand in non-core districts, despite the high availability rate keeping rents under pressure. In the retail sector, with gradually recovering tourist arrivals, the overall high street vacancy rate remained stable in the quarter. However, the structural shift of local residents taking more frequent trips northbound to mainland cities has led to a downward trend in Hong Kong’s total retail sales for the January to May 2024 period.
Office Market Key Takeaways
- Net absorption remained positive at 318,000 sf in Q2, with occupiers mainly focused on cost-saving or flight-for quality moves
- New lettings reached more than 964,500 sq ft, much higher than the 643,000 sq ft 5-year average
- The insurance sector emerged as the most active in new letting activities (22%), followed by professional services & real estate (21%), and banking & finance (19%)
- Overall availability is forecasted to rise to around 20% by the end of 2024
- We maintain our overall rental forecast of -7% to -9% for 2024
Retail Market Key Takeaways
- Retail sales growth slowed, including in categories popular with tourists
- Some international brands showed interest to open stores on high streets at selected locations while rents are still at an attractive level
- Vacancy rates across districts largely stabilized, while high street retail rents maintained mild growth rates
- The changing consumption patterns of inbound visitors and local residents may continue to present challenges to the local retail market
- We believe that increasing Hong Kong’s duty-free shopping allowance for mainland tourists could further support the city’s tourism
Residential Market Key Takeaways
- The number of residential S&Ps in Q2 is expected to reach 19,000 units, up 93% q-o-q and 56% y-o-y from the previous low level
- According to Cushman & Wakefield data, overall mass market home prices dropped 1.9% in Q2, bringing the YTD correction to 3.8%
- Primary sales remained as the market focus, as developers continued to actively launch projects with attractive prices
- Full-year residential transaction volume is expected to see an increase of from 15% to 20% to approximately 50,000 units
- While the high interest rate environment is likely to persist, home prices are forecasted to drop by 0% to 5% in 2024
