• Savills Launches Latest Research Briefings

    1 March 2016

    Savills launches five latest research briefings: Retail Leasing, Office Leasing, Residential Leasing, Residential Sales and Industrial Sales and Leasing.

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    Retail Leasing  

    Retailers remain under pressure and examples of lease surrenders and requests for rental reductions are on the increase.

    Having fallen by 10.6% during Q4/2015, Savills prime street shop retail rental index ended 2015 30% down on the year representing a 38% fall from the peak in 2013.  Apart from falling rents, tenant profiles are also changing as luxury fashion gives way to mid-market fashion, “leisure wear” and lifestyle brands.  The hardest hit have been the luxury retailers and there are plenty of examples of lease surrenders and requests for rental reductions as sales slump by 30% or more.  Prime shopping mall rents have remained on a steady upward trajectory even if luxury brands are releasing space.  New Territories malls seem to be doing reasonably well as local demand for convenience goods and same day visitor spending both seem to be holding up well.

    Simon Smith, Senior Director of Research and Consultancy Services, remarked, “While street shop rents have been hard hit by the downturn, shopping mall rents are holding up well.  Luxury fashion is bearing the brunt while mid-market fashion, leisure wear and lifestyle brands appear to be thriving.”

    Office Leasing 

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    Local office rents are high compared with the rest of the region but a lack of supply will result in increases on Hong Kong Island this year.

    Prime Central is still the most costly office market in the region, 77% more expensive than second-placed Tokyo.  Despite more subdued demand, the failure of supply to keep pace with even modest take-up is resulting in rising rents.  Rents of trophy buildings this year could reach historical highs as supply across the market will remain tight into 2017.  Average rents in Central rose by 4.7% in Q4/2015, the highest rate since Q2/2011, taking them to 9.3% below their previous peak in 2011.  In Kowloon, landlords face some large scale relocations to new developments leaving sizeable pockets of space behind.  Rents on Hong Kong Island may rise slightly this year, while Kowloon rents may drift down 5% to 10%.

    Simon Smith, Senior Director of Research and Consultancy Services  said, “Even though we have recorded weaker demand from mainland firms, tight availability in prime buildings should see further rental increases in 2016.”

     

    Residential Sales 

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    Weak market sentiment dampened developers’ desire to launch new luxury projects

    Stock market volatility and the interest rate rise in the US dampened investment sentiment, with few noticeable luxury transactions.  Luxury sector transaction volumes declined due to the lack of significant new launches in Q4/2015.  Luxury sector prices remained broadly steady, with luxury apartment prices on Hong Kong Island and Kowloon recording some mild declines.  The increase in future supply put further pressure on developers’ pricing of primary launches.  While primary sales rebounded after the quiet summer months, secondary sales declined further, and total transaction volumes of 10,000 in Q4 reached an all time low since 2002.  Luxury residential prices are on course to decline by 15% this year, with little positive news to report

    Simon Smith, Senior Director of Research and Consultancy Services, remarked, “Given the weak market sentiment, developers were slow in launching new luxury projects in Q4/2015, with both prices and volumes declining as a result.”

     

    Residential Leasing 

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    Luxury leasing market rents drifted in the last few months of 2015 with little growth reported in any segment.

    Financial services demand remains sluggish while retailers continue to feel the pinch.  The absence of leasing by senior MNC management resulted in the underperformance of townhouse rents compared with apartment rents.  Rents in Kowloon and New Territories fell by 1.7% and 1.9% respectively given the poor stock market performance and an increase in available stock from newly completed developments.   Although Savills noted some cost saving demand from Hong Kong Island, rents are expected to fall further this year especially in Yuen Long and Sai Kung.  Demand from serviced apartments was resilient in 2015 thanks to the new office market entrants and expansion demand from existing occupiers, particularly PRC firms.   Demand for townhouses will remain weak and Savills expects the trend for leasing outside traditional core areas to continue.

    “We expect to see rental declines in both 2016 and 2017 given weaker demand alongside an expected increase in supply,” said Simon Smith, Senior Director of Research and Consultancy Services. 

     

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    Industrial Sales and Leasing 

    The long term rally in the industrial sector is finally running out of steam. 

    Investment activity revived in Q4/2015 as end users and investors looked for conversion / redevelopment potential.  Warehouse vacancy rates rebounded to 2.1% in Q4/2015 with more space being made available by downsizing and cost-cautious occupiers.  While industrial godowns and lower quality warehouses may face downward rental pressure due to shrinking demand, higher quality and modern warehouses may be more immune.  The investment market may be further hit by the increasing cost of funds in Hong Kong as well as the imminent end of the “nil waiver fee” policy at the end of March 2016.

    Simon Smith, Senior Director of Research and Consultancy Services, remarked, “both industrial prices and rents fell in Q4/2015 given slowing demand and increasing supply in the sector, while the increase in investment deals was largely a result of end user / conversion demand.”

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