Jan 15, 2014, Hong Kong - In respond to Chief Executive CY Leung’s Policy Address announced today, Craig Shute, Senior Managing Director for CBRE Hong Kong, Macau and Taiwan has the following comments with regard to land supply and the housing market:
Office
The three government sites outlined for redevelopment combined will only expand total office stock by a mere 2.9%. Furthermore the completion of Murray Rd is not scheduled until at least 2018. The remaining two (Rumsey Street and Central Harbourfront) may not hit the market until 2021 or later, meaning we are unlikely to see any new office supply hit the market on Hong Kong Island for some time and when we do it is likely to be staggered in delivery and limited in scale. Across the harbor, development in Kowloon East accounts for the vast majority of pipeline supply going forward, with approximately 15.2 million square feet of supply set to hit the market in the next decade. This represents approximately 170% growth of total stock in the area by early next decade, making Kowloon East set to become Hong Kong’s main office hub in terms of total office space. In the short to midterm the majority of new supply in the area will have stratified ownership and may not be released onto the leasing market meaning effect on rents may be limited.
Retail
The decision to freeze the number of cities eligible for the Individual Visit Scheme and reduce the scope of multiple entry permits should dampen the number of mainland visitors. This could hamper the development of the development of suburban retail near the border, particularly the healthcare, watch & jewellery sectors. This will also put further pressure on the secondary street rents, which are suffering from higher vacancies, increased competition from shopping malls, and reduced spending patterns.
Industrial
While the proposal to set aside land for industrial use is welcomed, there is still a massive shortage of supply in the industrial and logistics sector. Vacancy rates have been hovering around 1% for the past three years and new logistics developments will certainly be welcome. The 10 hectares (1.07 Mn sq ft) of space set aside in Tuen Mun can offer around 2.5 to 3.0 Mn sq ft of modern logistics space. The proposed development on Lantau Island is a key area and should benefit from the completion of major infrastructure projects in the area (HK-Zhuhai-Macau Bridge in 2016 and the Tuen Mun-Chek Lap Kok Link in 2018). More land allocation in strategic locations such as Tsing Yi and Heng Shui Kiu should allow for more investment from logistics funds and developers looking to increase their presence in Asia.
Residential
There was no mention of additional cooling measures should be taken as a positive sign to the market and lend some stability. While the additional policy risk has lessened, it is unlikely that the current cooling measures will be relaxed in the short-term as supply will take time to hit the market. The government has pledged to increase the housing supply 40% from 33,000 units/yr to 47,000/yr. The longer completion time of 10 years may indicate the delay in housing completions. Overall, the lack of additional government intervention is welcome as market participants have one less variable to factor into their housing decision.
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