Hong Kong, June 27,
2017 –
Hong Kong’s investment market sentiment
strengthened in 1H 2017 thanks to overwhelming land sale results and
well-received residential site launches. Capital values continued to break record
highs through the first six months while government land tenders also fetched
over HK$100 billion.
Over HK$50 billion worth of
commercial property assets (priced over US$10 million) was transacted in 1H
2017, translating to 58% of last year’s total investment value.
The leasing momentum in Hong Kong’s office sector also picked up in 1H 2017, with net absorption at 224k
sq. ft. by the end of the first six months of 2017, equivalent to around 60% of
the full-year figure in 2016.
Low vacancy levels
continued to push Central rents higher, up 3.3% in Q1 and Q2 combined. While
rents across Hong Kong are at new record high levels overall, Central rents are
still 6.3% lower than the peak recorded in 2008.
The opening of new MTR
lines helped spur office leasing activity in decentralized areas such as Wong
Chuk Hang and Hung Hom while higher space availability in Kowloon East
continued to place moderate pressure on rents in Kowloon Bay and Kwun Tong.
The retail market continued
to see signs of stabilization in 1H 2017. While retailers were generally more
positive in the first six months than in 2016, they are not yet ready to resume
expansion plans.
Downward pressure on retail
rents reduced, with high street shop rents edging down a further 2.5% in the
first half, a significant slowdown from the 11.5% decline for the full year of
2016.
OFFICE:
- Net absorption in 1H 2017 was 224,000 sq. ft., circa 60% of the total 368,000 sq. ft. net take-up in the full year of 2016
- From a gross leasing perspective, 2.0 million sq. ft. of office space was recorded in 1H, up from 1.5 million sq. ft. in 2H 2016 and 1.7 million in 1H 2016
- The decentralization trend continued, with Hung Hom and Wong Chuk Hang becoming increasingly popular after the opening of new MTR lines
- Central rents increased by 3.3% in the first half after expanding 8.7% in 2016. The average rent in Central was HK$128 per sq. ft. per month, still 6.3% below the historic peak
- Kowloon East rents edged down a further 0.9% in 1H 2017 after dropping by 3.3% last year
- With more new options coming on stream in 2H 2017, more cost-saving driven relocation activity is expected to be seen towards the end of 2017/beginning of 2018
- Higher vacancy in Kowloon will lead to more apparent downward pressure on rents towards the end of the year. Central rents are expected to grow mildly in the second half of the year
RETAIL:
- Retail sales growth returned to the positive region in March and April (-1% in the first four months combined), indicating that the longest down cycle is coming to an end
- Mainland Chinese visitor arrivals increased during Golden Week in May
- Retailers and shopping centre landlords have become more positive after achieving mild positive sales and footfall growth during recent public holidays. However, retailers continue to hold a wait-and-see approach
- Entertainment and lifestyle trades remained relatively active in the leasing market. Cinema operators, for instance, have committed to over 150,000 sq. ft. of space in 1H 2017
- While market sentiment appears to have stabilized, it is unlikely that there will be a strong rebound in retail sales and hence expansion needs from retailers
- Rents are expected to edge down a little further in 2H 2017, but will likely hit bottom by year-end.
CAPITAL MARKETS:
- Strong interest in development land has seen total land sale proceeds from government land tenders reach over HK$100 billion in 1H 2017, the highest in a 1H on record
- The successful sale of the Murray Road Carpark site at a record high price has boosted sentiment in the office investment market. Landlords have become increasingly aggressive with their asking prices immediately since the sale, slowing down the overall transaction volume
- The investment market in 1H 2017 was the most active it has been in the past 4 years. HK$50 billion worth of commercial property assets changed hands, translating to 58% of last year’s total investment proceeds
- Unlike recent quarters where investment interest was more on office assets, investor appetite was more balanced in 1H 2017. With interest in all four asset classes – retail, hotels, industrial buildings and office
- Big ticket transactions, involving properties worth HK$77 million or above, increased by 43% y-o-y
- In 2H 2017, any interest rate hike is expected to be mild and gradual, with limited impact on investment demand and capital value growth in the short-term future
- The investment pace of Chinese capital is expected to remain slow until there is a relief in the offshore investment control measures
- Local developers might choose to dispose some of their non-core assets while institutional investors look for value-add investment opportunities.
INDUSTRIAL & LOGISTICS:
- Hong Kong experienced its best trade environment in three years in 1H 2017, with aggregate trade increasing by nearly 8.7% y-o-y in the first five months
- Leasing has been active in the first half of 2017, with demand mainly coming from e-commerce related trades as well as other new industries
- Cost-saving and forced relocation requirements will also spur leasing activity
- Higher vacancy is expected due to the completion of new logistics schemes in 2H 2017
- Rents will be largely flat between now and year-end.
Disclaimer:
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
