Skip Ribbon Commands
Skip to main content

News Release

Hong Kong and Macau

Retail Property Market The Star Performer for 3Q11

HONG KONG AND MACAU, 9 November 2011 – On the back of the global economic uncertainty and the cautious market sentiment, all property sectors except for retail recorded slowing growth in 3Q11. Record-breaking visitor arrivals and the sustained level of demand from reputable brands were the key drivers, according to Jones Lang LaSalle’s latest edition of Asia Pacific Property Digest.


The global economic uncertainty has cast a shadow over corporate expansion. Demand for office space dropped significantly towards the end of 3Q11, resulting in a modest net absorption of commercial Grade A office space at 324,500 sq ft (net). Vacancy rates continued to fall across most of the sub-markets, but were starting to move higher in some of Central’s Grade A1 buildings towards quarter-end. The overall vacancy rate fell to 4.4% as of the end of 3Q11.

Although uncertainties over the short-term business outlook caused some occupiers to put expansion plans on hold, the significant rental gaps that have opened up between individual buildings as well as the consolidation and upgrading opportunities provided by large tracts of latent space made relocation more affordable and feasible.

Office rents across most submarkets continued to rise on the back of narrowing vacancy rates, despite a significant drop in momentum was recorded in September. Overall rents continued to grow by 2.3% q-o-q. However, lacklustre absorption of latent space in Central has seen some landlords with higher vacancy at the top end of the market lowering their asking rents, leading to a 0.9% q-o-q decrease in rents in 3Q11.

In the investment market, growing economic uncertainty, a relative tightening of credit markets and a wide gap between buyers’ and sellers’ expectations caused transaction volumes to fall 70% q-o-q. Capital value growth grinds to a halt with a marginal increase of 0.8% q-o-q in 3Q11, slowing significantly from the 8.2% q-o-q growth in 2Q11.

Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta, remarks, ‘In view of the Eurozone crisis, several banks have already announced plans to scale back their global workforce, which means that demand from the banking and finance sector will remain generally soft in the immediate future. However, we do not expect to see a major round of corporate contraction as Asia, particularly Hong Kong, will remain as a strategic business location for these financial institutions. Over the short term, rents will remain under pressure as demand softens, especially in Central, and growth in capital value is likely to be constrained.’


With the strong support from tourism growth and international retailers’ continued interest in the city, the Hong Kong retail market​ remained intact despite the recent correction in the global stock market. Total retail sales in Hong Kong grew robustly by 29% y-o-y in July and August, bringing the year-to-date growth for the first eight months to 25.6%. Total visitor arrivals in Hong Kong grew by 19.9% y-o-y in August and grew by 16.2% for the first eight months of 2011.

Retail leasing demand continued to be strong in 3Q11. Luxury brands, in particular, stayed optimistic and continued with their expansion plans in Hong Kong. With the sustained leasing demand from reputable brands and the minimal space availability, rental growth accelerated slightly from 2Q11. During the 3Q11, average rents for high street shops and shopping centres grew by 5.3% -o-q and 3.0% q-o-q respectively.

On the sales side, Swire Properties sold the entire Festival Walk commercial development, which includes a 580,000-sq ft (NFA) shopping mall, to Singapore institutional investor Mapletree Investments for HKD 18.8 billion. It was the largest investment deal recorded in Hong Kong.

Although the investment market sentiment was subdued due to the tightened credit availability and the cloudy economic outlook, investors remained relatively positive about Hong Kong’s retail market. During 3Q11, average capital value for high street shops grew by 9.3% q-o-q.

Chan says, ‘Despite the increasingly gloomy outlook for global financial markets, Hong Kong’s overall economic fundamentals remained sound in 3Q11. However, key economic indicators suggest a potential slowdown in economic growth in Hong Kong in 2012, which may translate into softer local consumption. A reduction in wealth stemming from stock market corrections may also affect consumer confidence in the short term. Nonetheless, prime retail rents will be supported by inbound tourism, which is expected to remain a pillar for Hong Kong’s retail market.’


In view of the uncertain global economic outlook, potential buyers and sellers adopted a wait-and-see attitude, resulting in a notable slowdown in the residential market in 3Q11. New homebuyers became more cautious and hesitated in entering the market, facing the tightening credit availability by local banks and climbing mortgage rates. As such, the number of residential sale and purchase agreements registered in the July-August period contracted 61% y-o-y to 10,693 units.
The primary sales market was relatively quiet in 3Q11, with only three new projects launched, which were mostly well received. For example, Kerry Properties sold 98% of the 189 units at Soho 189 in Sheung Wan, while Sun Hung Kai Properties sold 95% of the 79 units at i.UniQ Grand in Shau Kei Wan. For Cheung Kong’s La Splendeur in Tseung Kwan O, about 500 out of 1,168 units were reportedly sold.
Demand for luxury residential properties also softened and transaction volumes for properties above HKD 20 million fell 24% q-o-q to 591 units. During the quarter, a detached house at 28 Lugard Road was sold for HKD 196 million. Given the slowing investment demand, luxury residential capital values edged down 0.6% q-o-q in 3Q11 after growing by 7.3% q-o-q in the previous quarter.

For the leasing market, multinational companies were more cautious in their expansion plans in view of the global economic uncertainties, leading to a slowdown in expatriate inflow. However, limited stock in prime areas helped provide support for rents, edging up a further 1.2% q-o-q during 3Q11.

‘We expect investment demand will continue to be soft for the rest of 2011, although low holding costs will remain a valid weapon to help existing landlords defend their holding positions. Nevertheless, in a market with shrinking demand, capital values are expected to trend down further, but low holding costs and sustained shortage in new supply will avoid a free-fall scenario,’ says Marcos Chan.

The recovery of regional supply chains, which had been disrupted by the natural disasters in Japan earlier in the year, helped Hong Kong’s external trading sector expand by 10.2% y-o-y in July-August.

While external leasing demand for warehouse properties weakened due to the slowing growth of export trade, demand from domestic end-users that benefitted from the strong retail sector in Hong Kong strengthened. Landlords continued to push for new highs the rental levels of their properties on the back of the improving occupancy levels. By end-3Q11, average rental value for warehouse properties grew by 3.9% q-o-q.

Notable leasing transactions were recorded in Wo Kee Building (19,525 sq ft) in Kwai Chung, Western Plaza (53,000 sq ft) in Tuen Mun and Tsuen Wan International Centre (29,391 sq ft) in Tsuen Wan.

The average capital value for warehouse properties recorded a moderate growth of 3.9% q-o-q. However, the growth was driven largely by valuations rather than actual transactions, which were limited in the quarter.

Marcos Chan remarks, ‘We expect that leasing demand for warehouses properties will continue to be stable over the near term, as demand from domestic-oriented occupiers is expected to remain intact on the back of the local consumption growth. While vacancy rates will remain tight with limited supply, some larger tracts of latent space may return to the market in 2012 as leases expire. As such, we expect to see some rental pressure in 2012.’