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News Release

Hong Kong

Strong Resilience in Capital Values with Sustained Investment Demand

Retail market continues to outperform all property sectors in Hong Kong

HONG KONG, 23 July 2012 — The Hong Kong property market demonstrated strong resilience in capital values across all sectors despite signs of slowing economic growth in the first half of 2012 and lingering concerns over a potential hard landing in the Chinese economy. The strength of capital values in Hong Kong property is due to sustained investment demand according to Jones Lang LaSalle’s Hong Kong Mid Year Property Review.

Office Market
The occupier market continued to expand on aggregate in 1H12 with an overall net take-up of Grade-A office space amounting to 1.1 million sq ft. While the Central submarket contracted, Kowloon East continued to be a popular choice for tenants and remained a key contributor to net take-up for 1H12.

Decentralisation remains a key trend with demand from the banking sector limited and companies seeking cost-saving opportunities through relocation. The overall vacancy level of office space is at a near 20-year low, currently sitting at 3.4%, down from 4.2% at the end of 2011. This is due in part to owner-occupier purchases.

Rents showed resilience across submarkets, with Central the only exception in 1H12.  As demand declined, overall Grade-A office rents slipped by 3.2%. Rental pressure was largely restricted to the top-tier buildings in Central, which led to a 7.4% drop in rents in the submarket. Rents outside Central continued to edge up due to continued decentralisation, with Kowloon East registering a 4.7% growth. This was followed by Tsimshatsui, where rents rose by 3.3% in 1H12.

Ben Dickinson, Head of Hong Kong Markets at Jones Lang LaSalle Hong Kong said: “The uncertainties in the macroeconomic environment will continue to weigh on leasing demand in 2H12. Demand from the banking sector is expected to remain weak and tenants continue to look for cost-saving solutions. While rents in Central may face further correction, we expect those in other submarkets to remain stable.”

Hong Kong Prime Office Indicator – % Change


Capital Values
(Jan–Jun 2012)
(Jan–Jun 2012)
Vacancy Rates
(Jun 2012)
Wanchai/Causeway Bay
Hong Kong East
Kowloon East


Retail Market
Growth in inbound tourism, particularly from mainland China, continued to provide strong support to the retail property sector. While overall tourist arrivals registered a 14.8% growth y-o-y for the first five months without clear signs of slowing down at the start of the year, the growth began to decelerate in 2Q on a m-o-m basis. Chinese visitors continued to account for the majority share of tourist arrivals, growing by 21.3% during the first five months of the year.

Total retail sales in the first five months amounted to HKD185 billion, up by 13.5% from the previous year. However, the momentum of growth slowed noticeably in 2Q, particularly for high price items such as jewellery and watches.

Despite this, foreign retailers remained keen on Hong Kong, with new brands continuing to set up new operations in the market. Supply shortages in the core retail spots have forced retailers to expand into some of the fringe streets within the busiest shopping districts, and this trend remains in 1H12. In addition, some brands began to expand into decentralised locations, thus narrowing the rental gap between the core and non-core locations.

Retail remained the best performing property sector in terms of rental growth in 1H12. Driven by sustained leasing demand from international retailers, rents for high street shops rose by 8.5%, while prime shopping centre rents have risen by 7.2% during the same period.

Tom Gaffney, Head of Retail at Jones Lang LaSalle Hong Kong, said: “The consensus among economists is that global economic growth is expected to remain sluggish in 2H12. This is likely to weigh on local and tourist consumption growths. As a result existing retailers in certain trades may adopt a more cautious approach towards expansion in the months ahead. However, with leasing demand from new market entrants combined with limited supply in the major shopping districts, we expect retail rents to continue to edge up in 2H12, if at a slower rate.”

Hong Kong Prime Retail Indicator – % Change


Capital Values
(Jan–Jun 2012)
(Jan–Jun 2012)
High Street Shops
Overall Prime Shopping Centre

Residential Market
The first half of 2012 saw a relative pick-up in sales demand with monthly transactions growing by nearly 41% y-o-y to an average of 6,900 units (2H11: 4,900 transactions). Improved market sentiment from last year together with more proactive lending from banks helped to release some of the pent-up end-user demand.

While capital values held up firmly in the secondary market, developers were generally conservative in pricing strategies when launching their new projects. The first six months of 2012 saw mass residential capital values rising by 9.3%, outperforming the 3.4% growth for luxury properties. This was partly due to catch-up from a lower base of comparison.

Sales of properties above HKD 20 million fell short of the level registered in 1H11, with 1,142 properties sold for a total consideration of HKD 51.5 billion. This was compared to 1,360 properties at HKD 64.2 billion in the previous year. The en bloc sale of various residential buildings also helped to boost the sales volume and total considerations for properties with price tags of over HKD100 million in 1H12.

On the leasing front, demand continues to soften due mainly to the slowdown in expatriate headcount growth, particularly in the banking and finance sector. The cutback in housing budgets and gradual shift in trend from corporate leases to personal leases also dragged leasing demand for top-end premises. Rents for luxury residential properties, therefore, contracted by 7.5% in 1H12. Demand for mid-range luxury properties, however, remained solid.

Joseph Tsang, Managing Director of Jones Lang LaSalle Hong Kong, commented: ‘Looking ahead to 2H12, economic and government policy uncertainties are likely to leave the sales market slow, as potential buyers tend to adopt a wait-and-see approach. Having said that, capital values are well supported by low holding costs and genuine end-user demand. However, the limited inflow of expatriates is expected to lead to subdued activity in the leasing market and pose further pressure on luxury residential rents.’

Hong Kong Prime Residential Indicator – % Change


Capital Values
(Jan–Jun 2012)
(Jan–Jun 2012)

Industrial Market
The first half of 2012 saw no significant improvement in Hong Kong’s trading sector, resulting in weakened leasing demand for warehouses. However, sustained demand from local retailers helped offset the impact and underpin much of the leasing activities. In an environment with high uncertainty, cost-saving remained a key theme and benefited industrial premises in fringe locations such as Tuen Mun. Despite slower leasing momentum, low vacancies continued to provide sound support for warehouse rents, edging up 2.2% in 1H12.

Looking ahead to 2H12, Marcos Chan, Head of Research of Greater Pearl River Delta at Jones Lang LaSalle said: ‘Moving forward, uncertainties in the EU and US trade markets are likely to continue to pose a negative impact on Hong Kong’s external trading sector. Domestic demand is also expected to ease in tandem with a potential slowdown in retail sales growth. As such, we expect to see a mild deterioration in the leasing market which may influence rents.’

Hong Kong Warehouse Indicator – % Change

Capital Values
(Jan–Jun 2012)
(Jan–Jun 2012)
Industrial-office (I/Os)
Flatted factories


Investment Market
The investment market in 1H12 saw activity on par with last year despite economic uncertainty and market volatility.  Investment interest was particularly strong for commercial properties, from retail shops to industrial floors and serviced apartment schemes.

There was no shortage of notable investment deals in 1H12 across all key property sectors, with 144 transactions recorded for properties at over HKD 100 million (excluding government land auctions and tenders), with total considerations reaching HKD 42.2 billion. Retail was the most popular commercial sector in terms of the number of transactions, with 42 deals at over HKD100 million recorded. In terms of total considerations, the office sector accounted for the largest share amongst the commercial sectors; fetching HKD 13.9 billion in 1H12. This comprised the en bloc sale of various office buildings, including but not limited to 50 Connaught Road Central, 18 Kowloon East in Kowloon Bay and Delta House in Shek Mun.

‘In general, demand for commercial properties remained strong so far this year, particularly for retail properties, where rents continue to rise at a faster pace. While capital values for high street shops outperformed all other property sectors, which have grown by 20% in 1H12, those for Grade-A offices and warehouses only saw marginal growth during the period, rising 1.2% and 2.2%, respectively,’ said Joseph Tsang.