- Leasing momentum in the Grade A office market strengthened in Q1, with the newly leased area expanding by more than 40% y-o-y and the overall net take-up remaining positive at 264,000 sq ft. Nevertheless, office rents remained under pressure due to the lifted availability rate, which edged up by 0.6% q-o-q.
- The overall high street vacancy rate remained largely stable, and rents in key retail districts picked up by around 0% to 1%. Mainland China brands are expected to be more active in expanding across the border into Hong Kong.
- With the Hong Kong government’s removal of all extra stamp duty measures for residential properties in the latest Budget announced on February 28, buyers and investors have returned to activity in the primary and secondary residential market, with the Q1 total transaction number rising by nearly 30% q-o-q to 9,823 units and property prices rebounding by 1.5% m-o-m from February's lows.
In the Hong Kong office sector, overall net absorption in Q1 remained positive, with the quarter also witnessing a y-o-y rise for new lettings, despite the high availability rate keeping rents under pressure. For retail, visitor spending continued to support a steady recovery in the market, with the overall high street vacancy rate remaining broadly stable. Following the Government's announcement in the latest Budget that it would lift all demand-side management measures for residential properties, the market responded positively, with primary and secondary residential transactions strengthening notably and home prices picking up from March onwards.
Office Market Key Takeaways
- Net absorption remained positive at 264,200 sf in Q1, mainly driven by new buildings in Kowloon East (289,700 sf), reflecting the fact that occupiers still favor flight-for-quality and cost-effective options
- Leasing momentum improved in Q1 2024, with gross leasing volume increased by 41% y-o-y to 889,000 sf
- The public sector was the most active in new letting activities (23%), followed by banking & finance (21%), and professional services & real estate (15%)
- Around 0.7 million sf of new supply will be completed through the rest of 2024, including Greater Central (432,700 sf)and Kowloon East (307,100 sf)
- The overall availability rate is forecast to rise further, beyond 20% by end-2024
- We maintain our overall rental forecast of -7 to -9% for 2024
Retail Market Key Takeaways
- Retailers are looking for consolidation and relocation opportunities in prime locations while rents are still at attractive levels
- Vacancy rates across districts largely stabilized in the quarter, although retail and F&B rental growth might slow due to increasing competition from nearby mainland cities
- Government initiatives to promote tourism and introduce mega events could help boost retail sentiment
- An expected influx of talent and the working population are to be the new sources of spending power
- Mainland retailers to remain active in entering the Hong Kong retail market as Hong Kong people become more familiar with these brands
Residential Market Key Takeaways
- Residential market sentiment has improved notably after relaxation of all cooling measures in February
- Residential S&Ps in Q1 2024 rose 29% q-o-q to ~9,820 units, with the market refocusing on primary units as developers actively launched sales with attractive prices
- According to Cushman & Wakefield data, overall mass market home prices bottomed-out in February and started to rebound in March by 1.5% m-o-m
- Full-year residential transaction volume is expected to rise 28% to 40% y-o-y to 55,000 to 60,000 units
- Our home prices forecast is now at 0% to +3% for the 1H 2024 period and at +5% to +7% for the full-year 2024 period, assuming there is an interest rate cut in 2H 2024
