(30 November 2018, Hong Kong) Knight Frank launches the latest Hong Kong Monthly Report. After rising for almost four years, the Grade-A office rental on Hong Kong Island is finally losing momentum in October. In Kowloon office market, the trade war has resulted in weakened leasing demand with a sharp fall in transactions.
In the residential market, even with the corrections, prices are unlikely to see a significant plunge like in 1997 as both the economy and interest rates are still manageable. In the retail market, the opening of major infrastructure projects helped increase foot traffic from the Greater Bay Area and boosted sales in nearby shopping centres.
Grade-A Office
Hong Kong Island
After rising for almost four years, the Grade-A office rental on Hong Kong Island is finally losing momentum. It was either flat or dipped slightly in various districts last month, even though vacancy rates remained at a historic low. One of the key reasons is that there were very few Mainland firms looking for new office space, in contrast to past years. The area that is first affected is Central, long been the most popular location for Mainland companies. Therefore, our office rental forecast for Hong Kong Island in 2019 is to drop between 1% to 4%.
Kowloon
The trade war has resulted in weakened leasing demand in October, with only around 70 leasing transactions recorded, a sharp fall from over 100 transactions in September. In Kowloon East, the business hub for the trading and shipping sectors, is particularly affected as some tenants relocating to cheaper and smaller space. With demand for office space likely to shrink, we expect the growth of Kowloon office rents to slow, growing between 1% and 3% next year.
Residential
Stock market woes have impacted market sentiment that has resulted a slowdown of activities for both home buyers and developers. The latest official prices fell for the second consecutive month, down 1.4% month on month in September. Buyers will continue to hesitate as they expect a steeper price correction.
Caution also spread to the super luxury sector as there were a few sizeable cancellations. However, this market is traditionally more resilient than the mass market.
Even with the corrections, prices are unlikely to see a significant plunge like in 1997 as both the economy and interest rates are still manageable. David Ji, Director and Head of Research & Consultancy, Greater China, forecasts that both the mass and luxury market prices will drop up to 10% in 2019, whilst that of super luxury market will largely stay flat, dropping 0-5%.
Retail
The opening of major infrastructure projects helped increase foot traffic from the Greater Bay Area and boosted sales in nearby shopping centres. In the long run, retailers will be increasingly exploring opportunities brought by the new connections, especially in widened markets in the Greater Bay Area.
Nevertheless, the current weak momentum in Hong Kong’s retail market will persist next year, thanks to the worsening fundamentals on the Mainland. We forecast that prime street rents in core retail districts will fall between 0% to 5% in 2019.
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