(30 October 2023, Hong Kong) Knight Frank launches the latest Hong Kong Monthly Report. Office leasing momentum remained soft, with a low level of leasing activity in both Hong Kong Island and Kowloon. The residential market remained downbeat under the prevailing economic conditions.
Under the high-interest rate environment, it takes time to react after unveiling the partially eased market-cooling measures. It is optimistic that consumer sentiment will improve significantly stepping into Q4, with the festive season approaching.
Grade-A Office
Hong Kong Island
In September, office leasing momentum remained soft, with a low level of leasing activity.
In the recent down market, flight-to-quality demand continued to grow, as occupiers seized the opportunity from falling rents for office upgrades or expansion in prime locations. Over the past month, there was some active movement from law firms, including relocations and office upgrades.
Vacancy rates were patchy in submarkets. Driven by affordable rents and more small transactions taking place, office space in Wan Chai has been gradually filling up.
Office leasing demand is expected to remain subdued in the short term in the absence of any positive catalysts. Coupled with the existing high vacancy rate in some districts and abundant upcoming supply, we expect the downward rental trend to continue for the remainder of 2023.
Kowloon
Overall business sentiment remained weak in September, and leasing activity continued to slow down. However, there were still some transactions, with lessees taking an opportunistic approach to optimise size or upgrade office building quality.
Looking ahead, given the present low rents, we expect office rents to remain stable for the rest of 2023 and the attention of the market to continue to be drawn to newer, quality office buildings.
Residential
The residential market remained downbeat under the prevailing economic conditions. Overall residential prices fell by another 1.4% MoM in August, down for the fourth consecutive month and further narrowing YTD growth to 1.3%, according to the Rating and Valuation Department (RVD).
Conversely, overall residential rents nudged higher with a 1.4% MoM increase in August, up for the seventh straight month, for 5.6% growth YTD.
Sales activity amongst market players, including homebuyers, landlords and developers, was muted throughout the month, as the public awaits the easing of stamp duty on home purchases in the 2023 Policy Address. Yet, under the high interest rate environment, it takes time to react after unveiling the partially ease market-cooling measures.
Retail
Hong Kong’s retail market witnessed steady performance, thanks to a further increase in visitor arrivals.Visitor arrivals saw a promising rebound since the reopening of the borders. However, the trend of local residents travelling outside Hong Kong outnumbering inbound tourists continued to gain steam. Although the retail sector recorded an increase in business activity during Golden Week, it was lower than expected.
Typhoon Koinu also took a toll on Hong Kong’s retail market, as the night markets along Hong Kong’s waterfront were cancelled on the 6 October weekend due to the typhoon, undercutting the government’s attempts to revitalise the night economy.
Some notable transactions were recorded during the month, giving hope for retail property investment.
Looking ahead, given the gradual recovery in inbound tourism and the government’s various initiatives to support the sector, we expect retail sales value to reach HK$400 billion this year. It is optimistic that consumer sentiment will improve significantly stepping into Q4, with the festive season approaching.
Report can be downloaded here.