- The Hong Kong Grade A office market witnessed positive net absorption for the fourth consecutive quarter in Q3 2024 to reach 324,100 sq ft, bringing the overall availability rate down to 19.3%.
- Core retail district high street rents recorded low single-digit growth q-o-q as leasing momentum gained pace, with banking and financial institutions taking opportunities to expand at prime locations
- The residential market finally saw the hoped-for interest rate cut, yet buyers need more time to digest the news. Housing prices remained under pressure in the still-high rate environment, declining by 6.2% in the first eight months, while total transactions recorded 10,200 units in Q3.
The start of the U.S. Federal Reserve rate cut cycle in September, coupled with the recent rebound in the stock market, sent positive signals to the Hong Kong residential market, with market sentiment and transaction numbers expected to further improve in Q4. The Grade A office market has now recorded positive absorption for four consecutive quarters, and several new lettings of more than 10,000 sq ft were concluded in the quarter, pulling the overall availability rate down to 19.3%. In the retail market, despite falling high street store vacancy and growing rental levels, the change in tourist spending patterns and the northbound travelling of local residents continued to pose challenges to F&B operators, leading to F&B rents adjusting downwards in Q3.
Office Market Key Takeaways
- Q3 net absorption remained positive for the fourth consecutive quarter. Occupiers mainly focused on cost-saving or flight-to-quality moves.
- The overall availability rate declined q-o-q to 19.3%, the first drop since Q1 2022. With no major completions in the next six to nine months, the overall availability rate is expected to remain largely stable.
- Amid fierce competition, landlords are keen to be flexible and to offer more incentives to attract and retain tenants.
- Demand from banking & finance and professional services occupiers is expected to gradually recover if the comeback of the stock market and IPO performance can sustain in the coming months.
- The overall Grade A office rental level is expected to decline by 6% to 8% in 2024.
Retail Market Key Takeaways
- Retail sales growth declined further amid the structural change of visitors' consumption habits and frequent outbound travel by residents during the summer holiday period.
- The market continued to see expansion activities by local and international brands on high streets, taking advantage of the attractive rental level.
- Vacancy rates across districts largely stabilized, high street retail rents in core areas maintained low single-digit growth rates within 3% q-o-q.
- Banks and financial institutions are actively opening wealth management centers and physical stores in prime locations to draw greater customer exposure.
- With the support from the Central Government's stimulus measures, the expected weakening of the HK$ and the comeback of the stock market, tourist footfall and consumption are expected to gradually recover.
Residential Market Key Takeaways
- The number of residential S&Ps in Q3 recorded around 10,200 units, up 11% y-o-y, but a drop of 43% q-o-q.
- According to Cushman & Wakefield data, overall mass market home prices dropped 4.6% q-o-q in Q3, bringing the year-to-date correction to 8.3%.
- We expect developers will be more active to launch new project sales as the U.S. Fed has begun the rate cut cycle.
- Sentiment is expected to pick up in Q4, while full-year residential transaction volume is expected to see an increase of 15% to 20% to around 50,000 units.
- Home prices are forecasted to fall within a 5% range full the full-year of 2024.
