• Office Leasing Market to boom as Retail Rents Fall

    21 July 2015

    Hong Kong, 15, July, 2015 – According to Colliers International Hong Kong Property Research and Forecast Report 2Q 2015, office leasing activities on Hong Kong Island continued to grow due to a wide range of occupiers, particularly those from banking and finance, opting for expansion.


    In the residential sector, both luxury and mass-market homes continued to hit record high prices. Structural changes in the mainland-consumer behaviour continued to hurt retail sector. Amid the declining retail sales and weak export performance of many Asian economies, the growth in demand from warehouse occupiers remained moderate.

    The following highlights the report’s findings and projections for different property sectors in Hong Kong:


    The leasing market on Hong Kong Island continued to grow in 2Q 2015 because a wide range of occupiers opted for expansion. Overall Grade A office rents increased 2.0% quarter-on-quarter (QoQ) to HK$66.1 per sq ft per month in 2Q 2015. Rental growth in Central/Admiralty and Tsim Sha Tsui outperformed other districts, increasing 2.7% QoQ and 4.2% QoQ respectively.

    Colliers forecasts that rental growth in Central will continue to outperform other districts for the remainder of 2015. Being the major source of Grade A office supply in the city in the next few years, rental growth in Kowloon East will lag behind other districts.


    Luxury property prices witnessed moderate growth of 2% in 2014, edged up 3% in 1Q 2015 and another 1% in 2Q 2015. Leasing activity in the luxury residential sector is gaining momentum. Rents for high-end residential properties in Hong Kong rose 3.1% QoQ in 2Q 2015 after 4.3% QoQ growth in 1Q 2015. Flats with monthly rents under HK$60,000 remained the most active.

    Home prices continue to rise despite repeated attempts by the government to keep them in check. Ever-rising mass home prices have limited buyer affordability and spurred demand for smaller flats, thus pushing up prices for tiny apartments. The potential of the first interest-rate increase essentially poses little threat to the fundamentals of Hong Kong’s housing market. Inadequate housing will continue to drive up prices. To have a healthy real estate industry, a vibrant secondary market with upgraders is vital.

    Colliers foresees rents rising 10%, faster than the 6% increase in prices. So yields should edge up 10 basis points in 2015.


    The growth in demand from warehouse occupiers continued to moderate. Warehouse rental growth slowed to 0.9% QoQ in 2Q 2015.

    The weak outlook for local retail sales and export performance will hinder demand for logistics services and warehouse premises. Colliers revised down the warehouse rental growth forecast for 2015 from 4% to 1%.


    Total retail sales fell 2.2% year-on-year in April 2015 after the 2.9% drop in the previous month.According to Colliers research, retail rents in the traditional top four shopping locations decreased 7.3% QoQ in 2Q 2015, following a decline of 3.5% in the previous quarter, dropping back to 3Q 2011 levels.

    Rents of street level stores have climbed to such a high base over the past few years that they are very vulnerable to a downturn. Owners of storefront shop spaces are cutting rents by up to 20% to retain tenants. With more vacant shops available, rents of street-level stores in prime shopping locations are tipped to slide; Colliers predicts a further 15% decline in 2015, after a full year decline of 5.5% in 2014.

    Rents in shopping malls will stay resilient due to the variety in their tenant mix and relatively high occupancy rates. Shopping mall rents will experience moderate single-digit growth this year.


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