HONG KONG'S 2017 COMMERCIAL PROPERTY MARKET STABILIZED BY SUPPLY AND DEMAND
HONG KONG'S 2017 COMMERCIAL PROPERTY MARKET STABILIZED BY SUPPLY AND DEMAND
January 23, 2017
Economic Uncertainties and Policies to Form Cautious Environment
Hong Kong, January 23, 2017– Policyuncertainties caused by changes of governments in Hong Kong and the U.S.,
along with the potential rate hike, tighter capital outflow control by the
Chinese government and Renminbi depreciation present challenges for the
commercial property market in Hong Kong in 2017, according to CBRE Hong Kong
Research. However, steady demand from selective industries coupled with a low
vacancy environment will ensure that the market remains broadly stable.
city's financial sector is expected to remain upbeat in 2017, with the volume
of IPO activity forecast to remain robust. This will result in continued leasing
demand for Grade A office space in and around the Central CBD,” said Marcos Chan, Head of Research, CBRE Hong
Kong, Southern China and Taiwan.“ Having said that,Renminibi depreciation and an interest rate
hike are set to affect tourist consumption and increase Hong Kong households' mortgage
repayment burden, thereby reducing discretionary consumer spending in the local
retail market, respectively. As such, the retail property market will continue
to suffer, however, retail rents will to start stabilize in the second half of
CBRE Forecast for Hong Kong
Commercial Property Subsectors
After a strong year in 2015, the Hong Kong Grade A
office market was slower in 2016, with net absorption standing at 368,000 sq.
ft. by year-end – equivalent to just 15% of the full-year total achieved in
2015. The slowdown in leasing momentum was mainly due to the weaker demand from
MNC occupiers as well as limited space availability in the core office
Leasing demand in
2017 will continue to be driven by the financial sector, which is set to
benefit from the recently expanded bilateral finance trade platform between
Hong Kong and China. Chinese firms, which have been instrumental in
contributing office demand in recent years, will likely expand at a slower pace
due to the tighter control on capital outflows.
“New office supply will
rebound substantially this year, with 2.8 million sq. ft. (NFA) of new space
scheduled for completion in 2017,” said Alan
Lok, Executive Director, Advisory & Transaction Services - Office, CBRE
Hong Kong. “This is the highest annual supply since 2008. But the majority
of new supply is situated in decentralized locations.”
in Central is expected to remain tight with rents expected to edge up within a
5%-range. Office rents will remain broadly flat in other Hong Kong Island
submarkets while Kowloon will see rents drop by 5%-10%, due mainly to higher
decline in Hong Kong's retail sales widened to 8.6% y-o-y in the first 11
months in 2016 from the 3.7% decline in 2015, corresponding with a 5.4% drop in
tourist numbers in the same period. Sales of watches and jewelry were impacted
the most, falling by 19.2% y-o-y in Jan-Nov 2016.
In contrast, food and non-luxury product retailers
continued to expand their business. Total restaurant receipts rose by 2.5%
y-o-y in Jan-Sep 2016.
street shop rents fell a further 12% in 2016, after falling 17% in 2015,
bringing the total decline to date to 27% from their peak in 2014. Shopping
centre rents, however, were broadly flat in 2016.
2017, slower economic growth in China and depreciation of the Renminbi are set
to undermine mainland tourist spending in Hong Kong,” said Joe Lin, Executive Director, Advisory & Transaction Services –
Retail, CBRE Hong Kong.“ However, the fall in high
street shop rents is not expected to exceed 5% in 2017, and by the middle of
the year, most leases that were signed during the market peak of 2014 will have
expired, meaning that rents are expected to stabilize from then on. Leasing
momentum is expected to gradually improve from 2016.”
trade activity coupled with disappointing retail market performance combined to
hinder leasing demand for logistics properties in Hong Kong over the course of
cost-saving has been a key theme with warehouse occupiers, certain trades were actively
looking for expansion, including car dealers looking for workshops, the F&B
sector looking for central kitchens and pharmaceutical companies looking for
2017, Hong Kong’s trade flows will remain low in the near-term.
demand from both third-party logistics providers and retailers is expected to
be thin, but new set-ups and expansion requirements from emerging industries such
as datacenters as
well as testing and certification companies are set to contribute to a greater
share of overall leasing demand for industrial properties,” said Samuel Lai, Senior Director, Advisory &
Transaction Services – Industrial, CBRE Hong Kong.
commercial real estate investment market slowed in momentum in 2016, with only
187 deals worth US$10 million or more (excluding pure land sales and internal
transfer transactions) – the lowest since 2009. However, large deals worth over
HK$1 billion continued to play a key role, contributing 51% of the investment
volume and bringing the full-year figure for total transactions to HK$85
premises remained the most sought-after asset class, supported by strong corporate
end-user and investment demand from Mainland Chinese corporate buyers. Sales of
retail premises remained weak, partly due to landlords’ firm stance despite
subdued leasing demand and falling rents.
to other markets in Asia Pacific, Hong Kong remained relatively attractive to
institutional funds, in terms of currency risk, taxation system and liquidity
in the market,” said Stanley Wong, Executive Director, Capital
Markets, CBRE Hong Kong. “Institutional fund activities are expected to be
robust in Hong Kong 2017 as they shift their focus from the investment market
in mainland China back to Hong Kong.”
In 2017, low vacancy
and sustained interests from end-users and investors will continue to support
capital values across the commercial property markets. In addition to office
premises, which are expected to remain sought after, industrial properties
suitable for end-users or those with redevelopment potential will continue to
be in great demand. Meanwhile, retail property investors are expected to remain
active in neighborhood areas rather than core retail locations.
“Supply and demand factors in a number of commercial property subsectors
suggest that the market as a whole will not see a significant downturn in
rentals or capital values either,” said Tom
Gaffney, Managing Director, CBRE Hong Kong, Taiwan and Macau. “Based on
currently available information, we believe 2017 will be a stable year and, if
current global and domestic macroeconomic uncertainties can be resolved, we may
see some modest growth, particularly in the second half of the year.”
Street Shop Rents in Core Locations
Street Shop in Core
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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