Savills News

Hong Kong investment sentiment rebounds in Q1

Hong Kong - 28 April 2019 Prominent real estate advisor Savills pointed out that Hong Kong office values have bounced back while street shop prices continue to drift. We saw some green shoots of office and retail price recovery on Kowloon side in Q1/2019, while prices remained largely flat on Hong Kong Island. We expect office prices to rebound across the board, and suburban retail to continue to outperform both in terms of price and rental growth.

• Bargain-hunting supported the office sector
• Suburban retail again dominated headlines
• The West Kowloon Terminal commercial site attracted tremendous market interest
• Office prices expected to rebound, while retail sector will see price and rental growth

Hong Kong - 28 April 2019 Prominent real estate advisor Savills pointed out that Hong Kong office values have bounced back while street shop prices continue to drift. We saw some green shoots of office and retail price recovery on Kowloon side in Q1/2019, while prices remained largely flat on Hong Kong Island. We expect office prices to rebound across the board, and suburban retail to continue to outperform both in terms of price and rental growth.

With office prices hitting a nadir at the beginning of 2019 following the subdued sentiment of Q4/2018, many bargain-hunting investors and end users re-entered the market, lending prices considerable support. Some slightly below market transactions (e.g. two small units in Lippo Centre in Admiralty - around HK$33,000 / sq ft; a small unit in Silvercord in Tsim Sha Tsui - HK$18,000 / sq ft; two units in C-Bons International Centre - HK$13,000 / sq ft) induced tremendous interest from buyers, with many shopping around for similar bargains.

In terms of retail, the core retail market declined unexpectedly in sales over January and Febuary (-1.6% YoY; electrical goods hit the hardest: -18.3%), while sustainable growth in suburban retail demand strengthen investor interest in street shops in areas such as Sheung Shui and Tuen Mun. The latter benefits from new residential developments, the recent completion of the Hong Kong-Zhuhai-Macau Bridge, as well as the imminent completion of the Tuen Mun-Chek Lap Kok Link, and therefore saw a street shop prices increase to HK$50,000 to HK$60,000 per sq ft towards the end of 2018, a 20% growth in two years, with yields compressing from 3.5% to slightly below 3%.

The anticipated launch of the topside commercial development of West Kowloon Terminal in Q3 this year attracted tremendous market interest as an ideal location for large Mainland corporates and MNCs with increasing Mainland business; yet the scale of the project (estimated to be over HK$100 billion) may put off potential suitors and whether the development would be subdivided or phased may decide the ultimate market.

Mr. Peter Yuen, Managing Director, Head of Investment & Sales said: “When office prices grounded at the beginning of 2019, investors and end users began to look for bargains, with landlords quick to increase asking prices in the face of improving economic conditions and more positive sentiment. As we can see, positive indicators like the 4,000-point gain in the Hang Seng Index since the turn of the year and a rebound in trading value both suggest a strong influx of capital into the territory looking for investment opportunities.”

Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Multiple favourable factors support positive market sentiment in the office sector, which looks set to drive prices and volumes over the next six to nine months. The more varied retail sales performance continues to drag on the core retail sector, with suburban/neighbourhood retail is likely to attract more attention.”

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