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All indicators point toward solid performance for the year ahead
Will Hong Kong's residential property prices come down? Is the retail sector's recovery sustainable? Will more multinational companies move out of Central?
Here's a snapshot of what we predict is in store for real estate owners, occupiers and investors over the coming 12 months.
1. Room for residential price growth
Residential property capital values are expected to rise 10%, with the luxury segment outperforming mass residential. The upside could be as much as 20% growth under the right market conditions.
Record high prices being achieved in the market and supply of rare luxury units will maintain buying interest, and this could support to further price growth. However, vacancy at the top-end of the market is likely to exert downwards pressure on rents of up to 5%.
"Demand for mass residential properties will also remain strong, although sales momentum may slow given the expected interest rate hike," observes our Managing Director, Joseph Tsang.
Sales activity will gravitate towards the primary market as developers' incentives continue to attract home buyers.
2. Central office rentals to climb to new heights
Vacancy remains tight and Grade A office rents in Central are forecast to rise by up to 5% in 2018 having recently surpassed the previous market peak of 2008. Mainland Chinese companies will continue to drive leasing demand.
The widening gap between rents in Central and emerging core business districts—Hong Kong East is as much as 64% cheaper than the CBD—will add momentum to decentralization.
Outside of Central, rents will edge marginally higher given the pace of pre-commitment talks surrounding the 2.1 million square feet of new supply coming on line.
"The new supply is unlikely to significantly impact Central's office market given that PRC companies are less likely to consider decentralized locations," points out our Head of Markets, Alex Barnes.
3. Rents to pick up slowly amid retail market recovery
We believe the sector will undergo an 'L-shape' recovery with the rental market finding a floor. Food and Beverage operators, mid-range fashion and cosmetics retailers will lead leasing demand.
We anticipate high street and prime shopping mall rents will increase by up to 5%, despite new retail supply rising from 307,000 sq. ft. in 2017 to 2.9 million sq. ft. in 2018.
Brands are likely to explore opportunities in new malls in non-core shopping districts, such as Tseung Kwan O and Kai Tak, which are within walking distance of newly completed residential developments.
Of note is the emergence of "more retailers offering products and services that accommodate the shrinking size of flats, such as laundry services in convenience stores," adds our Head of Retail, Terence Chan.
4. E-commerce and HK-Zhuhai-Macau Bridge to kick start industrial rental growth
E-commerce and the opening of the Hong Kong-Zhuhai-Macau Bridge will boost demand for prime warehouses.
"After last year's 3% rental retreat warehouse rents are expected to increase by up to 5% owing to steady improvements in the external trade environment," notes our Head of Research, Denis Ma.
Warehouses situated near the airport and seaports will draw the greatest interest.
5. Investment outlook is positive market wide
If the industrial building revitalization scheme resumes, investor sentiment will lift, boosting capital values of the broader industrial market as much as 10%. We forecast office capital values will increase by up to 10% due to strong demand for office assets and sustainable rental markets and despite the limited stock of Grade A offices for sale.
"Investor interest in retail properties is expected to gain momentum but attention is likely to focus on neighborhood assets rather than high street shops," says Tsang.
Hong Kong's property market is expected to continue to shine in the eyes of PRC investors.
For more information, contact our Managing Director, Joseph Tsang, or our Head of Research, Denis Ma.
Managing Director and Head of Capital Markets
+852 2846 5231
Head of Research, Hong Kong
+852 2846 5135
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+852 2846 5008