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News Release

Hong Kong and Macau

Jones Lang LaSalle: Positive Pick-ups Seen in Hong Kong’s Various Property Market Sectors in 1Q10


Hong Kong’s property market regained its strong momentum on the back of a brighter economic outlook, a more robust business environment, strengthening consumer confidence and an improving external trade environment.  Rentals and capital values across all property sectors were on an up-trend, reports Jones Lang LaSalle in its latest Asia Pacific Property Digest.

Office Market

Demand for larger office space in 1Q10 increased amidst a more vibrant business environment. Leasing activity picked up as companies sought consolidation and mild expansion opportunities. In the largest leasing transaction in Wanchai/Causeway Bay over the past five years, Sun Hung Kai Securities leased six floors (97,000 sq ft, lettable) in The Lee Garden to consolidate and expand its various offices currently in Admiralty.

Insurance companies remained as the key tenant group for office space in Kowloon East. For example, Manulife expanded in-house by taking up two interlinked floors (130,000 sq ft, gross) in Manulife Financial Centre in Kwun Tong; AIA relocated away from Hong Kong Island and leased seven and a half floors (about 90,000 sq ft, gross) in International Trade Centre in San Po Kong.

The total net take-up recorded in 1Q10 was 906,198 sq ft (net), which is the highest level in a quarter since 1Q08.  The overall vacancy rate declined to 6.2% in 1Q10 from 7% in 4Q09.

During 1Q10, office rentals in Central and Wanchai/Causeway Bay grew by 7.5% q-o-q and 3.3% q-o-q, respectively.  Rents in Tsimshatsui remained stable, while rents in Kowloon East rose by 1%.

For the sales market, the sale of Fortis Tower in Quarry Bay to Hong Kong Housing Society became the focus. It was sold en bloc for HK$1.83 billion. Another sale transaction of 10 floors with car parking spaces and naming rights in One Harbour East, Kwun Tong, for HK$1.07 billion also attracted much attention.

Capital value growth accelerated across all submarkets in 1Q10, with Central registering the strongest growth, up 7.8% q-o-q.

‘Looking ahead companies are expected to continue to be eager to commit to leases over the near term before rents climb higher. However, the rental growth momentum recorded in 1Q10 is not expected to replicate in 2H10. With most large space occupiers having already executed consolidation plans over the past 12-18 months, demand requirements are likely to be considerably smaller. Low vacancy and reduced pressure from expiring leases should however continue to lend support to rents and prevent the slowdown in rental growth from turning into a correction.’ remarks Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta.

Hong Kong Prime Office Indicator - % Change
Sub-market            
Capital Value (q-o-q)  
Rental Value (q-o-q)      
Overall
6.1%
4.8%
Central
7.8%
7.5%
Wanchai/Causeway Bay
5.3%
3.3%
Hong Kong East
3.6%
-0.3%
Tsimshatsui
4.2%
-0.1%
Kowloon East
2.0%
1.0%
 
Residential Market

The residential sales market regained momentum in 1Q10, with the number of sale and purchase agreements rising by 20% to a total of 33,249.  With the sustained low interest rate environment and tight future supply, buyers were eager to enter the market despite of the rising prices.  During the quarter, several projects were launched and well received by the market. 

For the mass sector, Sun Kung Kai Properties launched YOHO MIDTOWN in Yuen Long and sold 1,278 units out of a total of 1,890; Kerry Properties launched Island Crest in Sai Ying Pun and sold 295 units; and New World Development sold over 85% of the 152 units in Belcher’s Hill in Kennedy Town.

For the luxury sector, demand remained strong with 50 units in Meridian Hill being sold.  In a record-breaking transaction, a house in Severn 8 was sold for HKD 280 million or a unit price of HKD 60,215 per sq ft, setting a new record high for detached houses in both Hong Kong and Asia.

During 1Q10, the capital values for luxury and mass residential properties rose by 8.1% and 9.7% respectively.

On the leasing side, demand for luxury properties continued to be strong on the back of the expanding corporate sector.  During the quarter, rents for luxury residential properties grew by 4.8%.

The government announced to lift the stamp duty for residential properties worth above HKD 20 million from the previous 3.75% to 4.25%, effective 1 April 2010.  Two government sites were sold during the quarter.  The residential site in Tseung Kwan O (TKOTL 76) was sold to Sun Hung Kai Properties for HKD 3.37 billion while another site above Austin MTR Station in West Kowloon was sold to the consortium of New World Development and Wheelock Properties though a tender.

‘The low interest rate environment is expected to help prolong the current market up-cycle but the growth for residential prices will moderate.  The government’s decision to earmark six luxury residential sites for irregular land auctions will provide little help to boost the future residential supply.  The residential market is expected to continue to experience a demand-supply imbalance in the near future,’ says Marcos Chan.

Hong Kong Luxury Residential Indicator - % Change
Sector           
Capital Value (q-o-q)      
   
Rental Value (q-o-q)     
Luxury
8.1%
4.8%
Mass
9.7%
N.A.
 
Retail Market

With the stronger local consumer confidence backed by a more positive labour market outlook and the bonus payment effect, total retail sales cumulatively rose by 18.8% y-o-y in January and February.  Visitor arrivals in Hong Kong grew by 17.5% y-o-y in the first two months of 2010.

Demand for retail space in core shopping locations mainly came from watch and jewellery and personal care product retailers.  For examples, Luk Fook Jewellery leased 10,000 sq ft (gross) at 101 Nathan Road for HKD 2.4 million per month; and Watsons leased about 11,000 sq ft (gross) at 4-6 Handow Road for HKD 1.5 million per month.

Retail properties in both the core and decentralised areas continued to attract investors’ attention.  Notable transactions recorded during the quarter included the sale of G/F and 1/F of 42-44 Yee Wo Street, Causeway Bay for HKD 410 million; and the sale of the 20,500-sq ft gi mall in Tsimshatsui for HKD 320 million.

During the quarter, rents for high street shops and overall prime shopping centres grew by 3.4% q-o-q and 3.7% q-o-q respectively.  Capital values for high street shops grew by 8.8% q-o-q.

‘The outlook for Hong Kong’s inbound tourism market is expected to be prosperous as visitor arrivals is predicted to be going up in 2010.  Coupled with the strengthening local consumer confidence, leasing demand for retail premises from both existing retailers and new entrants will likely increase.  As future supply of prime shopping centre space in core shopping locations will remain tight, we expect these areas to continue to lead the rental growth for the remainder of 2010,’ says Chan.

Hong Kong Prime Retail Indicator - % Change
Sector          
Capital Value (q-o-q)      
Rental Value (q-o-q)   
Prime Steet Shops
8.8%
3.4%
Premium Prime Retail Centres    
N.A.
5.6%
Overall Prime Retail Centres    
N.A.
3.7%
 
Warehouse Market

Hong Kong’s external trade sector recorded a significant growth during the first two months of 2010.  Total exports rose by 22.8% y-o-y while imports rose by 31.3% y-o-y. 

The favourable external trade environment helped reactivate companies’ expansion plans.  During the quarter, notable leasing transactions were recorded at some of the developments, including Global Gateway (HK) in Tsuen Wan (20,884 sq ft), Western Plaza in Tuen Mun (53,000 sq ft), and YKK Building Phase 3, Tuen Mun (including two transactions of 16,000 sq ft and 32,900 sq ft respectively).

There was no notable warehouse sales transaction concluded in 1Q10.  However, the investment market for industrial properties remained active as the government’s industrial building revitalisation policies continued to draw the interest of the investors, especially towards the ground and lower floor properties, which are perceived to be the greatest beneficiaries of the policies, both directly and indirectly.

Having declined for several quarters, warehouse rents grew by 1.2% q-o-q during 1Q10.  Capital values grew slightly by 1.4% q-o-q after surging by 7.1% q-o-q in 4Q09.

‘Should vacancy remain at very low levels across the market and new supply continue to be limited, any pick-up in demand will provide a platform for landlords to raise rents more aggressively.  On the other hand, with the strong rebound in capital values and tightening of yields over the past six months, investment demand will likely remain subdued, unless a larger growth is seen in rents and yields,’ concluded Chan.

Hong Kong Warehouse Indicator - % Change
Sector           
Capital Value (q-o-q)    
Rental Value (q-o-q)   
Warehouse    
1.4%
1.2%