- 2023 YTD Grade A office net absorption, as of mid-November, was negative at –267,100 sq ft NFA; rents remained under pressure, down 7.2% YTD.
- The retail market continued its gradual recovery process, with average high street vacancy rates in Q4 dropping further to 8.2%; high street rents increased in a range of 5% to 10% in 2023.
- The high interest rate environment and stock market volatility have slowed the residential market, with 2023 full-year transaction numbers expected to be at a 10-year low; prices to fall by around 5% this year and by 0% to 5% in 1H 2024.
- Capital market sentiment remained cautious, with large-sized deal (non-residential, exceeding HK$100 million) investment volume in 2023 YTD (as of December 5) recorded at HK$39.7 billion, down 33% from the 2022 full year. Investment transactions were mainly driven by local capital and end-users.
Corporate occupiers have remained cautious through 2023 in the face of an uncertain global economic recovery. Consequently, new office leasing demand has stayed relatively subdued, in turn exerting further pressure on office rental levels. In the retail industry, overall sentiment continued to improve, supported by the border reopening and the return of tourists, and with the growing presence of experiential retail strategies providing a new impetus to the industry’s growth potential. However, the persistent high interest rate environment coupled with stock market volatility have dampened home purchase sentiment, with the residential market witnessing declines in both transaction numbers and prices. In the CRE investment market, end-users are becoming the primary drivers of activity.
Office Market Key Takeaways
- Overall net absorption recorded +379,700 sf in Q4, driven by a newly completed building in Kowloon West, although year-to-date net absorption remained in negative territory at -267,100 sf
- Most submarkets recorded drops in availability rates, except for Greater Central and Kowloon West
- A mega-size deal in the insurance sector took the spotlight in the quarter, while non-core submarkets remained attractive for cost-saving occupiers
- We expect rents to remain in a correction phase in the range of -7% to -9% in 2024, weighed down by the high availability rate and economic uncertainty.
- The new supply pipeline may further push availability up to more than 19%, a new record high after Q1 2004 at 18.1%
Retail Market Key Takeaways
- The Hong Kong retail market continued to gradually recover in 2023, yet international brands remained cautious on expansion
- Jewelry & watches shops and pharmacies maintained expansion in the period, taking opportunities to secure prime locations while rents are still relatively attractive
- High street and F&B rents recorded mild q-o-q growth across districts, up 5% to 10% for the year
- Mainland China brands are expected to be the key drivers of leasing activities in 2024
- Rental levels in 1H 2024 are forecasted to rise in the range of 2% to 7%
- We expect to see retailers provide more experiential offerings at physical stores to attract footfall, together with some consolidation activities
Residential Market Key Takeaways
- The Hong Kong residential market continued to slow amid the high interest rate environment, with the total 2023 residential S&P number expected to be down by 5% y-o-y
- According to Cushman & Wakefield data, overall home prices retreated 5% from their 2022 levels, with corrections seen across residential segments
- The high interest rate environment and poor stock market performance have impacted buying sentiment, with some potential purchasers turning to the leasing market instead
- We forecast 2024 transaction volume to grow at around 20% y-o-y to reach approximately 50,000 to 53,000 units, with home prices dropping in the range of 0% to 5% in the 1H 2024 period
Investment Market Key Takeaways
- Total consideration stood at HK$39.7 billion for the 2023 year-to-date, as of December 5, down 33% from the 2022 full-year volume
- Local and mainland China capital have been relatively more active, with end-users driving market transactions
- The high interest rate environment is expected to continue to weigh on investment sentiment in 2024
- Supported by demand from incoming talent, rental housing assets are likely to be sought after in 2024
- We expect to see further large-sized or en-bloc distress sales to come, with 2024 total investment volume forecasted to reach HK$50 billion
