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News Release

HONG KONG AND MACAU

JLL Expects Strata Offices to Outperform Overall Market

Investment Yields to Remain Stable


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Hong Kong commercial real estate sales saw an uptick in the first half of 2015 with a total investment volume of US$4.8 billion, according to JLL Hong Kong’s latest report of Asia Pacific Capital Markets in Focus. In the second quarter, investment volume grew by 102% year-on-year to US$3.8 billion. Joseph Tsang, Managing Director and Head of Capital Markets at JLL Hong Kong, said the strata office market is expected to perform strongly, with strata offices recording higher transaction volumes due to robust leasing demand from financial services and securities trading firms and with rents rising in core areas.  Meanwhile, investors are showing greater interest in en bloc industrial properties in Kowloon West and Hong Kong North priced at comparably reasonable levels. 

Office Market 
Investment transactions in the office market were mainly driven by end users and long-term investors purchasing strata offices as demand from financial services and securities trading firms pushes rents up. Nine Queen’s Road Central 33/F saw record high prices. In the first half, transactional yields of offices ranged from 2.5% to 2.9%, with Central seeing the highest rental growth in the region. Rents of Grade A offices in Central has raised 8.4% from January to July. With the continued growth of strata office rents, the strata office market is expected to outperform the overall real estate market. 

Retail Market
With the decline in the number of visitor arrivals from mainland China and with exports remaining sluggish, Hong Kong’s total retail sales declined by 1.8% year-on-year in the first five months of 2015. The continuing decline in spending by mainland visitors has resulted in rents of street-level shops dropping. Transactional yields from the Hong Kong retail market​ ranged from 2.8% to 3.2% in the first half of 2015. 

Industrial Market 
The slowdown of the mainland China economy saw Hong Kong’s external trading sector turn negative in the first half. Meanwhile, record high rents of Hong Kong industrial buildings have curbed leasing demand. Transactional yields in the industrial market ranged from 3% to 3.5%. Looking ahead, en bloc industrial properties in Kowloon West and Hong Kong North will see stronger investor interest due to comparably reasonable price levels. 

Residential Market 
Sales of new homes were driven by pent-up demand from end-users, and the high-end residential market continues to see strong demand from local and foreign buyers, driving transactions in the residential market in the first half. Because of the continuing demand for high-end residential properties, the housing market is expected to remain robust in the second half. Sales in the Hong Kong housing market may slow in the second half if the US Federal Reserve begins to raise US interest rates.   

Joseph Tsang, Managing Director and Head of Capital Markets at JLL Hong Kong, said: “Moderate GDP growth is expected this year due to the economic slowdown in China. Recent corrections in the stock market have put the brakes on investors’ decision-making process despite ample liquidity in the market. All in all, yields are expected to remain relatively stable this year despite the expected US rate hike.”