Knight Frank’s latest Hong Kong Monthly Report highlights the property market’s performance across different sectors. In September, the Hong Kong office market continued to face challenges; however, on a positive note, market momentum improved, and more expansion activity was recorded.
Leasing momentum in the Kowloon office market was slow in September, with a strong wait-and-see sentiment. In the residential market, despite the new cycle of interest rate cuts officially beginning, the downward trend in property prices showed no sign of abating. Hong Kong’s retail market remained weak, with total retail sales value declining for the sixth straight month in August 2024.
Grade A Office
Hong Kong Island
In September, the Hong Kong office market continued to face challenges. The overall Grade A office rent on Hong Kong Island continued to drop to HK$61.9 per sq ft in September, decreasing by 6.8% YoY and 3.6% YTD. The office vacancy rate on Hong Kong Island remained at a high level of 13.4% owing to continued stagnant leasing demand.
On a positive note, market momentum improved, and more expansion activity was recorded. During the month, we observed some expansion cases in the banking, finance, and wealth-management sectors.
Moving forward, we expect overall business sentiment and leasing activity to gradually improve, thanks to some positive catalysts, like the interest rate cut and the improved stock market. Furthermore, the Government announced in the Policy Address 2024 its intention to develop a “headquarters economy” to attract enterprises from outside Hong Kong to set up headquarters and/or corporate divisions in Hong Kong. We believe that this policy will attract large MNCs to relocate to Hong Kong, and could drive office rental activity.
Kowloon
Leasing momentum in September was slow, with strong wait-and-see sentiment.
In September, the volume of new leasing transactions saw a MoM decrease of 25%. With limited new demand, the average monthly rent dropped slightly to HK$22.5 per sq ft. Most of the leasing transactions were dominated by small to medium-sized units of under 3,000 sq ft and rents of HK$20 per sq ft or less. Leasing activity from electronics companies was more active during the month.
A few relocation cases, especially in Kowloon East, dominated the leasing market in September.
ICBC’s moving from Kwun Tong will significantly increase office vacancy. We expect major developers in Kowloon East to adjust their rents to attract new tenants. Overall rent levels in the area are expected to fall until the end of the year, when more relocations are likely. Overall, we expect a rental drop of 1–3% over 2024.
Residential
Despite the new cycle of interest rate cuts having officially begun, the downward trend in property prices showed no sign of abating. First-hand transactions dropped more than 50% MoM. Both buyers and sellers were waiting for potential new measures to be announced in the Policy Address and further interest rate cuts.
Following the recent interest rate cut, developers are capitalising on the opportunity to aggressively launch new projects with attractive discounts.
On the leasing front, overall rents increased for the sixth consecutive month, up 1.1% MoM and 6.8% YoY. In the first eight months of the year, rents have risen by more than 6%. In the luxury residential segment, in contrast, there is greater flexibility for negotiating rents.
Policy Address 2024 announced a relaxation in the loan-to-value ratio cap for all property mortgages to 70%. With the abolition of all cooling measures, along with lower interest rates, we expect more high-income local and overseas professionals to enter the mid-to-high-end residential property market over the long term.
Nonetheless, we expect the overall property prices to remain under pressure in the near term, as despite recent rate cuts, interest rates remain relatively high, and second-hand properties continue to struggle due to aggressive primary sales.
Retail
Hong Kong’s retail market remained weak, with total retail sales value declining for the sixth straight month in August 2024. Outbound travellers continued to outnumber visitor arrivals, which further undermined local retail market performance.
On the leasing front, there were a handful of expansion cases from foreign brands in major shopping malls and streets, including The Swatch Group and Mango expanding their footprints, as well as the return of Abercrombie & Fitch.
In the investment market, owing to the US Fed’s interest rate cut, transaction momentum is gradually returning. Although the current rental yield of the shop is said to be about 3.5%, which is lower than the expected yield from other transactions earlier this year, it shows that investors are still confident in prime street shops bringing more value after the gradual rate cut. The retail market is still adjusting and adapting to the new consumption patterns of both tourists and locals. Shopping mall landlords are more flexible in rent negotiations in the short term to maintain a higher occupancy rate. Prime street shops in core areas remain attractive to investors waiting for the market to rebound. As market headwinds continue, retailers and restaurants are still cautious about further expansion