• Lower rents attract increasing presence of Chinese Mainland tenants

    22 December 2020

    (22 December 2020, Hong Kong) Knight Frank launches the latest Hong Kong Monthly Report. Grade A office rentals extended their downward trend in November, albeit with a less significant rental drop than in the previous quarters. With a fourth COVID-19 wave hitting Hong Kong in late November, the residential market turned quiet again.

    Purchase sentiment in the primary market cooled down after brisk sales in November. For the retail market, the continued downtrend in retail sales is expected to narrow in the coming months. In 2021, we expect to see a smaller decline in overall retail rents.

    Grade-A Office                                                                                                         
    Hong Kong Island

    Grade A office rentals extended their downward trend in November, albeit with a less significant rental drop than in the previous quarters.

    Multinational companies have adopted a wait-and-see approach regarding their real estate plans amid the economic recession, while many Chinese Mainland tenants have taken advantage of the downbeat environment to expand their presence in Hong Kong.

    Stepping into 2021, landlords especially in the core districts are expected to continue to offer competitive packages to retain cost-conscious tenants and fill vacant space. We expect rents to fall by 5–10% in core districts and decline by 0–3% in the decentralised areas in the coming year.

    Kowloon

    As Kowloon East districts such as Kowloon Bay and Kwun Tong offered more affordable consolidation options, activity level remained high in these decentralised areas.

    Recent transactions were dominated by renewals, as companies were reluctant to spend a considerable amount on relocation. However, some sizable companies were still looking to relocate within the same district to seek higher office quality at the same or lower rent.

    Although the economy will remain exposed to substantial uncertainty in the near term, we expect early signs of recovery towards mid-2021 once effective vaccines become available. We expect Kowloon office rents to fall moderately in the first three quarters and expect a rebound in Q4 2021.

    Residential

    With a fourth COVID-19 wave hitting Hong Kong in late November, the residential market turned quiet again. Purchase sentiment in the primary market cooled down after brisk sales in November.

    With stricter social-distancing restrictions in place, activity in both the sales and leasing market slowed down. Potential buyers and tenants adopted a wait-and-see attitude, resulting in fewer queries and requests for flat viewing. However, there were still notable transactions in the primary luxury market.

    Looking ahead, the high unemployment rate and the economic recession will continue to weigh on the housing market. Large-scale layoffs and unpaid leave will persist in 2021. Salary increments are expected to be very small or non-existent, which will undermine purchasing power. We expect mass residential property prices to drop by 5% while luxury housing market to remain flat or fall by 5% at most next year.

    Retail

    Hong Kong’s sluggish retail market showed early signs of easing. Although the sales figure remained on a protracted downtrend, this was the smallest fall in the past 16 months.

    In the subdued retail environment, landlords and tenants actively launched various promotion campaigns to stimulate consumer spending.

    Christmas is a typical peak season for the retail market, but the fourth wave of the COVID-19 epidemic has dented consumption sentiment. However, consumers have become more used to shopping and dining with the social distancing rules than during previous waves. We expect the continued downtrend in retail sales to narrow in the coming months. In 2021, we expect to see a smaller decline in overall retail rents, dropping 10–15%.

    For further information, please visit knightfrank.com.hk.

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