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Senin, 10 Juli 2023 12:00:00

Cushman & Wakefield: Hong Kong Retail Market in Gradual 1H Recovery Since Border Reopening, Office Leasing Market Yet to Stage Significant Rebound

Residential Transaction Slowdown Since May as More Buyers Turn Cautious in Rate Hike Environment

Retail sentiment continues to rebound, with high street rents maintaining low-single-digit growth, vacancy rates further dropping across districts, and pharmacy sector the most active for expansion

Overall Grade A office net absorption in Q2 recorded -172,700 sq ft as leasing activity is yet to rebound significantly, some tenants taking advantage of lower rents for flight-to-quality moves

Initial boost from border reopening on residential market fades, as high interest rate environment suppresses housing transactions and price performance

HONG KONG SAR - 6 July 2023 - Global real estate services firm Cushman & Wakefield today published its Hong Kong Property Markets Review and Outlook 1H 2023 report. Hong Kong's regular economic activity levels have gradually resumed as the city fully reopened its border, supporting a recovery of tourist spending in the retail market.

Total retail sales reached $171.9 billion in the first five months of the year, up 21.0% y-o-y. However, the office leasing market has yet to see a notable rebound, with negative absorption continuing into Q2. The overall office availability rate rose slightly to 17.3%, further weighing on rental levels. In the residential market, buyers have become more hesitant to enter transactions given the higher interest rates, leading to a 13% q-o-q decline in the number of transactions in Q2. Home prices also started to fluctuate towards the end of the quarter.

Office Market - Net Absorption Still Negative in Q2 as Corporates Remain Cautious

Overall business sentiment strengthened after Hong Kong fully reopened its border, although the return of cross-border activity to normalcy did not alleviate companies' caution amid an uncertain global economic outlook. The office leasing market has not yet seen a significant rebound, while leasing activity by mainland enterprises in Hong Kong has yet to meet expectations.

Hong Kong's Grade A office market recorded net absorption of -172,700 sq ft in Q2, mainly due to downsizing by multinational companies during the quarter, notably in Greater Tsimshatsui and Greater Central. However, this is an improvement from the -248,200 sq ft recorded in Q1. The overall availability rate has slightly increased from 17.1% in Q1 to 17.3% in Q2, in turn exerting further downwards pressure on Grade A office rents, which fell by 2.1% q-o-q and 3.6% YTD, with the most notable drop observed in Hong Kong East.

John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefieldstated: "In terms of new leasing transactions, the share of new transactions by area across business sectors was distributed more evenly in Q2. While the banking and finance sector still accounts for the largest share of newly leased space (25%), the medical/health/beauty, consumer products/manufacturing, and insurance sectors have each contributed more than 10%.

The increase in demand for medical/health/beauty and insurance services from mainland visitors since the border reopening has driven up office space requirements from these sectors. Looking ahead to 2H, several large new office buildings are expected to be completed, and this, added to the existing high office availability, has hindered the rebound in office rents. Overall office rents are expected to further adjust in 2H, with a forecast of a 5-7% decline for 2023. With the recent signs of improving Sino-U.S. relations, it is expected that the gradual return of the economy and cross-border activities will support business confidence and expansion plans, which could aid the office market to recover."

Retail Market - High Street Rents Improve as Vacancy Rates Further Decline, yet Larger Retail Brands Remain Wait-and-See

Hong Kong's retail market has been gradually recovering thanks to the resumption of tourist spending. Total retail sales from January to May totaled HK$171.9 billion, recording a significant y-o-y increase of 21.0% due to the lower base last year. Among retail sectors, Jewellery & Watches, Fashion & Accessories and Medicines & Cosmetics, popular product categories among tourists, continued to outperform, with y-o-y growth rates of 76.6%, 54.0% and 37.4%, respectively.

The overall high street vacancy rate continued to trend downwards across submarkets, with an average vacancy rate of approximately 9%, the lowest in the past three years. As for high street retail rents, all districts recorded low single-digit q-o-q growth in Q2, bringing an average rise of approximately 5% for 1H 2023. Central district saw the strongest increase of 7.1%, supported by both high-end tourists and local consumption. In addition, F&B rents continued to rise steadily, with 1H 2023 growth of 5% to 6% across different districts.

Kevin Lam, Executive Director, Head of Retail Services, Agency & Management, Hong Kong, Cushman & Wakefield stated, "Since the border reopened, drug stores and pharmacies have been the predominant driving force of new leasing activities in the core districts. The spending pattern of mainlanders has changed from "shopping-centric" to more "experience-based" tourism, which has paused the expansion plans of some high-end retailers and large brand chains. Although there have been some recent leasing transactions for luxury brands, most of them are for relocation and consolidation purposes, hence making it difficult to foresee a significant rebound of rental growth in the short term.

As well, we have seen that following the border reopening, the travel outflow of locals is greater than the inflow of tourists to Hong Kong, which could diminish some local consumption power. As a result, the retail market during the Labor Day and the Buddha's Birthday holiday periods was not as active as hoped-for. Therefore, we are conservative on the rental projection for 2H this year, depending on tourist arrival numbers in the first summer vacation period since the onset of the pandemic."

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