- Hong Kong retail market vacancy rates remained stable in Q3, with high street and F&B rents recording low single-digit growth, and jewelry & watches and cosmetics brands predominantly driving expansion
- Overall Grade A office space net absorption remained mired in negative territory at -225,900 sq ft in Q3, although new leasing activity was notably more active compared to the prior two quarters
- Persistent interest rate hikes and a downward stock market trend have slowed residential transactions in both primary and secondary home markets, with prices continuing to decline throughout Q3
Supported by increased visitor spending, retail market sentiment continued to pick up in the quarter, with total retail sales achieving HK$270.5 billion for the January to August period, up 19.3% y-o-y. Less positively, Grade A office market net absorption remained in negative territory, with the overall availability rate rising to 17.7% and prompting downward rental adjustments. In the residential market, unfavorable factors such as persistent interest rate hikes and a downward trend in the stock market continued to weigh on transactions, contributing to price declines.
Office Market Key Takeaways
- Overall net absorption dropped further south at 225,900 sf in Q3, although Greater Central outperformed as the only submarket with positive net absorption
- New letting transactions in Q3 2023 reached 811k sf NFA, up 40% q-o-q, Kowloon East remained attractive to occupiers with several large-sized deals concluded
- Within Greater Central, mainland China firms are becoming more active, accounting for 36% of the Q3 new lettings in the submarket (vs. 17% in 2022 FY)
- MNC occupiers are increasingly committed to incorporating ESG elements when considering relocation options, whilst the most tenants tended to opt for lease renewals for cost-saving purposes
- Global economic uncertainties and the high availability rate at 17.7% will further weigh on rental performance, and consequently we expect overall office rents to fall in the range of -5% to -7% in 2023
Retail Market Key Takeaways
- Competition from nearby mainland cities in the GBA has diverted some local spending, hindering the pace of recovery in the Hong Kong retail market
- Jewelry & watch brands further expanded on main streets in Q3, with support from growing demand
- Q3 high street rents recorded low single-digit q-o-q growth across districts, we expect full-year high street rents to increase from 5% to 10% in 2023
- Mainland China F&B brands are becoming more active in expanding in Hong Kong
- Mall operators should improve tenant mixes and experiential retail elements to attract footfall, while the government could line up more major sports and recreational events to keep up Hong Kong’s tourist market competitiveness
Residential Market Key Takeaways
- With interest rates showing no signs of falling, the Hong Kong residential market continued to slow in Q3
- Numbers of residential S&Ps in Q3 2023 dropped 25% q-o-q and 21% y-o-y to less than 9,200 units
- According to the Cushman & Wakefield residential price index, small-to-medium home price dropped by around 5% q-o-q in Q3
- Full-year residential transaction volume is expected to drop in the range of 0% to 5% annually to approximately 43,000 to 45,000 units
- We expect more price volatility in Q4 amid rising interest rate, and home prices are forecasted to adjust from 0% to -5% in 2023
