Investment Market Sentiment Remains Upbeat; Leasing Momentum in Retail and Industrial Sectors Improve
Hong Kong, April 17, 2017 – Demand for office space in Wong Chuk Hang and Hung Hom doubled in the first quarter of 2017 after the completion of new MTR lines, according to CBRE’s Q1 2017 MarketView Report. Leasing momentum in Hong Kong’s retail and industrial sectors also registered an uptick, supported by improving retail sales.
“The completion of new MTR lines has spurred relocation demand. We have already seen some tenants from core locations moving to Wong Chuk Hang and Hung Hom. Looking forward, we expect more occupiers to decentralize as rents become more affordable and the travel time is much shorter now,” said Marcos Chan, Head of Research, CBRE Hong Kong, Southern China and Taiwan.
Grade A Office Rents Continue to Rise
Office leasing momentum slowed marginally in Q1, with net absorption dropping 5% q-o-q to 197,000 sq. ft.. Leasing activity was dominated by large transactions made outside core areas, such as Freshfields Bruckhaus Deringer’s decision to decentralize a large portion of its office functions to Quarry Bay. PRC financial firms remained a key driver of leasing demand in Central while activity in Kowloon and the New Territories was mostly driven by retail occupiers. The net absorption in Wong Chuk Hang increased to 156,700 sq. ft. in the first quarter from 68,300 sq. ft. in Q4 2016 while Hung Hom saw a net take-up of 10,077 sq. ft. in the first quarter from net decrease of 18,300 sq. ft. in Q4 2016.
Grade A office rents continued to increase, rising by 1.6% q-o-q. This was led by demand on Hong Kong Island. Rents in Kowloon and the New Territories were flat.
Investment Market Sentiment Remains Positive
Market sentiment remained upbeat but transaction volume declined 1.7% on a quarterly basis, mainly skewed by the HK$6.5 billion transaction of a commercial building in Kowloon East in the fourth quarter of 2016. Excluding this major deal, investment volume increased 32% q-o-q to HK$25 billion.
The capital values of Grade A offices rose 3.2% in the first quarter from an increase of 1.3% the previous quarter as investment sentiment remained positive.
The hotel investment market registered a significant rebound, with seven assets transacted for a total of HK$8.5 billion, around 7 times the total amount of hotel investments in the full year of 2016.
F&B Continues to Support Retail Leasing Market
Retail leasing sentiment improved in Q1 as the contraction of Hong Kong’s retail sales slowed down in pace. Total retail sales fell 3.2% year-on-year in the first two months, compared to a 3.7% dip in the last quarter of 2016.
The drop in high street shop rents narrowed but Central was under some pressure due to mounting lease expiry. Shopping mall rents fell by 0.9% q-o-q.
Visitor arrivals increased further in Q1, registering a 1.4% y-o-y uptick in January and February combined. The F&B sector continued to be the driving force of the leasing market, with grab-and-go outlets the most active.
E-commerce Growth Supports Demand for Warehouses
The leasing momentum of industrial buildings and warehouses was solid in Q1, driven by forced relocation demand and expansion of express services to meet strong e-commerce growth. Industrial real estate demand was also supported by the improving real economy, with aggregate trade increasing by 8.1% y-o-y in January and February, the strongest growth since Q4 2011.
Vacancy in the industrial sector declined by 0.2 percentage points to 3.5%, primarily due to solid take-up in Mapletree Logistics Hub. However, rents for ramp-access facilities continued to drag down overall rents as landlords adopted a more proactive approach ahead of the completion of new supply. Overall warehouse rents dropped 0.4% in the quarter from 0.2% decline previously.
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