Source: Media Outreach
Home prices saw the steepest drop in the last decade, down by as much as 20% from the August peak and look to drop by another 10% in 2019 amid poor sentimentProperty investment market recorded all-time highs in both the transaction volume and considerations in 2018, but the record is unlikely to be repeated in 2019Greater Central office rents are projected to drop by 5% in 2019 due to dampened demand, but rents in non-core areas will be supported by cost-driven relocationsDemand for retail expansion faces headwinds, but strong growth in PRC tourist numbers could be a silver lining that supports retail rents in core areas, except Central. HONG KONG, CHINA – Media OutReach – 6 December 2018 – Cushman & Wakefield, a global leader in commercial real estate services, noted that global uncertainties have made an impact on the Hong Kong property market, leading to falling home sales and prices, alongside decelerating growth in office and retail rents in core areas. The property investment market has begun to cool with transaction volumes in Q4 expected to shrink to half the level in Q3. The outlook for the first half of 2019 is muted for all sectors. Residential: Sentiments chilled after robust H1
Home sales peaked in Q2 (18,881 residential S&Ps) this year buoyed by positive sentiment early in the year. With the U.S. and China beginning to cross swords over bilateral trade issues towards the end of Q2, however, monthly residential S&Ps began dropping below 5,000 in August. As market sentiment has weakened, home sales in Q4 dropped further to 4,243 and 2,635 in October and November respectively, and the whole quarter is expected to close at about 9,400 S&Ps, making Q4 2018 the worst performing quarter since Q1 2016. Mr Alva To, Cushman & Wakefield’s Vice President, Greater China & Head of Consulting, Greater China commented, “Primary sales surpassed secondary sales for the first time since late 2015, a sign that buyers preferred to be on the sideline while landlords who had reaped the profits during the up-cycle were more willing to sell on some discount. However recent sales of primary projects are also sluggish against the weak market sentiment.” In fact, the decline in home prices has accelerated since August, with the price of representative estates such as City One Shatin and Taikoo Shing dropping by 20.0% and 15.7% respectively as of December, whereas Residence Bel-Air and The Harbourside have dropped by 11.3% and 14.0% respectively over the same period. In other words, the gains in prices recorded during 2018 have been erased for many estates. Mr To said, “The last major drop in home prices from mid-2015 to mid-2016 was induced by policy factors. This time, however, the drop is much steeper, and we expect the impact of global uncertainties, including trade tensions and rates moves, will continue to cloud the market outlook over the near term. We expect sales to be mainly driven by the launch of primary projects and those secondary homes at major discounts, and home prices could drop by another 10% next year, before finding support from sales of much discounted homes.” Investment: Record-high 2018 transaction volume and considerations amid strong headwinds
From January to the end of November, a total of 409 major transactions (each with a consideration of over HK$100 million) for a total consideration of HK$220.6 billion were recorded, reflecting an all-time record high for the property investment market in 2018. However, the gains concentrated in H1 of the year, with souring buyer sentiment leading to muted investment activity in H2. While volumes in Q1 (143) and Q2 (142) were at quarterly record-high levels, the market began to cool in Q3 following the growing trade tensions, with transaction volumes in Q3 dropping 37% from the Q2 level. With more buyers moving to the sidelines, transaction volumes have dropped further in recent months, with volumes in Q4 expected to be less than have those in Q3. The total considerations in Q4 thus far accounted for only 22% of the value in Q3. Mr Tom Ko, Cushman & Wakefield’s Executive Director, Capital Markets in Hong Kong, commented, “With 409 major transactions recorded from January to now, 2018 is set to be another record-breaking year for the investment market, although the gains mainly happened during the first half of the year. Since Q3, seasoned investors have become more prudent in the face of the growing global uncertainties. We expect the market to remain cool in 2019 as seasoned investors remain cautious, until there is more clarity to the external situation.” “Luxury residential took the lion’s share in terms of transaction volume in Q4 thus far and we expect the investment interest will still focus on this asset class as most transactions will be underpinned by end-user demand. In view of strong demand fundamentals and government policy support, industrial properties are likely to remain favorable over other commercial asset classes,” added Mr Ko. Office: Central rents remain highest globally but occupier demand dampened by uncertainties
Global uncertainties have affected the Hong Kong office market since Q3, the average Grade A rent in Greater Central edging higher by only 0.2% QoQ to HK$138.2 per sq ft per month (net effective rent) as of Q4. The Prime Central rent stood at HK$164.8 per sq ft per month, up 0.3% QoQ. The CBD has been impacted by external factors more than other districts due to a fall in take-up by PRC firms in the face of a continuing exodus by MNC’s. As a result, the territory-wide net absorption fell to a level of -11,744 sq ft in Q4, moving into negative territory for the first time in two years. While this was a result of returning stock in most districts overwhelming net take-up, it is worth noting that leasing activity in some areas such as Hong Kong East and Hong Kong South was relatively robust, supported by cost-driven relocations. This has also led to increases in rents in these two districts during the last quarter, by 2.3% and 6.7% respectively. Despite the fluctuation in net absorption over the course of 2018, the overall availability of Grade A space in the Hong Kong office market remained stable during the year at around 7.0%. Mr John Siu, Cushman & Wakefield’s Managing Director, Hong Kong, said, “In Q4, whilst business activity slowed due to on-going trade tensions, the lack of available space in Greater Central where availability is at 5.1% (Prime Central at 4.2%) meant that rents were not negatively impacted. Cost sensitive occupiers will continue to be attracted to the choice, quality and value offered in Kowloon East (13.0% vacancy) and Hong Kong South (11.1%).” The co-working sector has been a significant source of occupier demand this year, particularly with PRC operators behind some of the biggest leasing deals in core areas that intensified the competition for market share against more established western operators. Mr Keith Hemshall, Cushman & Wakefield’s Executive Director, Head of Office Services, Hong Kong said, “The co-working sector has shown remarkable growth to date, but we expect expansions to slow in 2019 amongst all but the largest players amid a more cautious business environment.” Retail: Core rents came around, outlook mixed
Compared with other sectors, the impact from global uncertainties on the retail leasing market has been less severe, as the sector was propped up by substantial growth in tourist numbers, particularly those from Mainland China, and strong sales of jewelry and watches. Market sentiment was robust during the first half of this year, before turning more cautious in Q3 in the face of the growing trade tensions. However, tourist arrivals remained strong in Q4, thanks partly to the launch of the XRL and the HKMZ Bridge, which is expected to support retail sales towards the year end. Core retail rents in Q4 thus remained stable, with all districts gaining from 0.3% to 1.2% QoQ, except for Central where rents continued to drop by 1.6%. In contrast to a YoY drop in rents by 3.3% to 5.8% as of Q4 2017, rents in Causeway Bay, Tsimshatsui and Mongkok have increased by 1.5%, 2.3% and 5.6% respectively since January 2018, while Central rents dropped by 6.3% over the same period. The rental performance of Causeway Bay, Tsimshatsui and Mongkok have come around in 2018 thanks to improved market sentiment, especially in the first half of the year. In addition, vacancy in core areas continued to improve over the course of 2018, with zero vacancy in Causeway Bay for both Q3 and Q4. Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head of Retail Services, Hong Kong, commented, “The low vacancy in core areas has been critical to the stabilizing of retail rents. However the demand for retail expansion on the part of operators is weak amid the ongoing uncertainties. We expect rental growth of 1% to 3% in core areas in H1 2019, with the exception of Central where rents are projected to see a drop of 3% to 5%.” F&B rentals dropped continuously throughout 2018, despite a steady increase in F&B spending. Mr Lam commented, “The F&B sector is challenged by a perpetual lack of manpower and increase in labor costs, which greatly hindered the ability of operators to expand. The core areas have been hit harder than the non-core areas, where cheaper manpower is more readily available. This is particular the case for Causeway Bay where F&B rents dropped by 8.4% year-to-date.” Being in the city with the highest retail rents globally, local operators continually look for breakthroughs in the retail scene by introducing exciting and relevant customer experiences. Mr Lam said, “Some of the best-performing trades in the retail leasing market this year, such as athleisure and multi-brand cosmetics/personal care, have invested in positioning and store designs in order to create better experiences for their customers. This will be a trend to watch in 2019 when operators will likely be conservative in terms of expansion, in the face of external uncertainties.” Click here for the full report.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. Across Greater China, there are 20 offices servicing the local market. The company won four of the top awards in the Euromoney Survey 2017 & 2018 in the categories of Overall, Agency Letting/Sales, Valuation and Research in China. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, advisory and other services. To learn more, visit www.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)
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Dampened Demand in the Hong Kong Property Market Leads to Clouded Outlook for 2019
Source: Media Outreach