• Kevin Murphy

Hong Kong: A June 2019 Review

Recent protests over new extradition policies with China along with the China and America tariff battle the view of tenants in the local Hong Kong market is a cautious one in a recent survey by Knight Frank. Weakening in the rents for Grade-A office in May for Central declined by 0.1% month on month to HK$160 per square foot. Most new transactions for space was in the smaller and mid-level space of below 15,000 sq. ft on Hong Kong island.

The district of Kowloon the Grade-A office was more active in May with transactions month over month increasing by 65% with the most deals being in the Kowloon East area for 6000 to 7000 sq ft space.

The Knight Frank report states:

'In the first five months of 2019, half of the transactions over 20,000 sq ft were recorded in Kowloon East. Major demand was driven by shipping, logistics and electronics companies.'

'One significant leasing deal recorded during the month was FT Life Insurance Company’s letting off our floors, totalling 126,000 sq ft, in NEO in KwunTong. The company will lease the office space for a monthly rent of around HK$26–$28 per sq ft. averaged after calculations of various incentives.'

The residential market saw a rebound for April and March with a small increase in May with a sales volume increase of 4.9% month over month to 8,208 units. Prices have for residential homes has increased 3.2% month over month to April. For secondary homes some banks lowered mortgages valuations by 2 to 5%. The first five months of 2019 had 160 forfeitures of preliminary deposits which was the equivalent to the total of 70% in 2018.

One such transaction reported:

'In a recent case at The Pavilia Hill in North Point, the buyer cancelled the transaction of a penthouse duplex unit, forfeiting the deposit of HK$7.55 million.'

The retail sector saw a decrease in sales for the three consecutive months reportedly declined in April by 4.5% year over year. The consumer sector in particular for luxury brands with sales dropping 11.4% year over year due to a cautious buyer sentiment.

One example noted :

'A low floor unit in The Galleria, at 9 Queen’s Road Central, covering 6,500 sq ft with a 1,500-sq-ft rooftop flat, was leased to an F&B operator for a monthly rent of HK$150,000 or HK$23 per sq ft, much lower than the current market rent level.'

Reluctance by retailers for new rents has been a key factor in driving down rental prices with new concessions by property owners to lowering rates.

One recent transaction:

'Harvey Nichols Hong Kong, for instance, will introduce a new format flagship store in Pacific Place in September 2019, with technology the core element in the shop. The new flagship store will showcase three times the offerings of the existing store, while reducing the size of the store by 50%.'

The overall outlook for Hong Kong by Knight Frank:

'We expect the retail climate in the second halfof the year to be largely impacted by the weak economic conditions caused by the US-China trade conflict. Locally, the current political upheaval may also have a longer-term impact on both sentiment and consumer spending. Even in the near term, Hong Kong’s retail market is expected to face considerable headwinds.'

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