Office market net absorption remained positive, high street vacancies stabilized
- The Hong Kong Grade A office market recorded growth for the third consecutive quarter, with overall net absorption remaining positive at 318,000 sq ft in Q2. Nevertheless, office rents remained under pressure due to the lifted availability rate, dropping 1.5% q-o-q.
- The overall high street vacancy rate stabilized, and rents continued to record low single-digit growth rate across retail districts. Mainland brands are expected to become key drivers of leasing demand in the long term.
- Residential transactions accelerated after the Government lifted all demand-side management measures for residential properties, with the Q2 total transaction number forecasted to record approximately 19,000 units, rising by over 90% q-o-q from the low base of last quarter. Home prices remained under pressure amid the high interest rate environment, declining 3.8% for the year-to-date.
HONG KONG SAR – Media OutReach Newswire – 3 July 2024 – Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets Review and Outlook 1H 2024 press conference. With the Government lifting all demand-side management measure for residential properties in late February, the number of residential transactions rose noticeably in April. However, transactions in May slowed again from April’s high due to a combination of factors. The Grade A office market recorded positive net absorption for the third consecutive quarter, mainly driven by leasing demand in non-core districts, despite the high availability rate keeping rents under pressure. In the retail sector, with gradually recovering tourist arrivals, the overall high street vacancy rate remained stable in the quarter. However, the structural shift of local residents taking more frequent trips northbound to mainland cities has led to a downward trend in Hong Kong’s total retail sales for the January to May 2024 period.
Grade A office leasing market: Net absorption stayed positive in Q2 2024, availability rate remained largely stable
Overall net absorption in the Grade A office market in Q2 remained positive at 318,000 sq ft, leading to total net absorption of 582,200 sq ft for the 1H 2024 period. In terms of new leasing activities, 964,500 sq ft of newly leased space was recorded in the quarter, representing a y-o-y increase of about 70%, with Kowloon East and Greater Central accounting for the greatest shares at 33% and 23%, respectively. By industry sector, in terms of newly leased area, the insurance sector at 23% was the most active, followed by the professional services sector (22%), banking & finance sector (20%) and consumer products & manufacturing sector (17%) all recording double-digit shares.
Two new office building projects were completed and entered the market in Q2, located in Greater Central and Kowloon East, leading the overall vacancy rate to slightly increase to 19.8%. The overall Grade A office rental level decreased by 1.5% q-o-q, and has fallen by 2.1% for the year-to-date (Chart 1). Looking ahead to 2H 2024, we expect the pace of office leasing activity to be similar to the first half of the year. Companies are still focusing on cost controls, while the market will need some time to absorb the available area, with ample office supply in the current market situation. Therefore, office rents are expected to stay under pressure, and we maintain our original forecast of a 7% to 9% drop in 2024.
John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield, said, “As at Q2 2024, the total leased area of Grade A office buildings in Hong Kong stands at about 56.6 million sq ft, similar to the 56.4 million sq ft at the end of 2020. This reflects that the overall demand for office space has remained broadly stable over the past few years despite the pandemic, and the rising availability rate was mainly due to the completion of new Grade A office buildings in recent years. On the other hand, the current rental level has dropped by about 38% from the 2019 peak, providing opportunities for companies to move into better-quality buildings with a similar rental budget, supporting the absorption of quality office space. In addition, according to the 2024 World Competitiveness Report, Hong Kong’s overall ranking has risen by two places to fifth in the world, reflecting the appeal of Hong Kong’s business environment globally. Moreover, many professionals who have recently been approved by different talent schemes have begun to settle in Hong Kong, which is expected to help support long-term office demand.”
Retail leasing market: Overall high street vacancy rate remained stable, rental recovery more evident in Tsimshatsui and Central
With the changed consumption patterns of mainland visitors and the trend of Hong Kong people going northbound to spend, which has relatively weakened local consumption, total retail sales from January to May 2024 amounted to HK$162 billion, a drop of 6.1% y-o-y. With the exception of the Medicines and Cosmetics category, all key retail categories are showing a downward trend. However, the overall high street vacancy rate remained generally stable. Of the key retail districts, Tsimshatsui has seen greater tourist numbers and consumer footfall, bringing a drop of 1.2 percentage points in the vacancy rate to 10.6% over the quarter, while Causeway Bay (2.6%), Central (7.0%) and Mongkok (11.1%) remained flat q-o-q.
With the steady rise in inbound tourist numbers, high street rents across districts saw modest single-digit growth in Q2. Notably, Tsimshatsui, popular among tourists, recorded the most significant increase, rising by 2.8% q-o-q and 3.9% year-to-date, respectively. Central district followed closely, supported by high-spending tourists and local consumption, with a 2.7% q-o-q rental increase (Chart 2). As for the F&B sector, local operators generally remained cautious. F&B rents in Causeway Bay and Central saw a 3% q-o-q increase, while Tsimshatsui and Mongkok recorded mild q-o-q growth of less than 1%.
Kevin Lam, Executive Director, Head of Retail Services, Agency & Management, Hong Kong, Cushman & Wakefield, commented, “The trend of Hong Kong residents traveling to mainland cities for spending, especially during weekends and long holidays, has become a structural change. It is expected that the net outflow of outbound Hong Kong resident passenger trips compared to inbound tourists may even intensify compared to last year. However, the number of visitors to Hong Kong is steadily increasing, which should further improve the vacancy situation for high street shops. We forecast that rental growth for high street shops across districts in 2H 2024 will range from 0% to 5%. Regarding leasing activity, although some international brands have taken advantage of the current attractive rental level to open stores in core areas during the quarter, most retailers will remain cautious in expansion activities. We expect leasing demand in 2H will continue to be mainly driven by mainland retail brands and F&B operators. In recent years, tourists have shifted from shopping-focused travel to “in-depth tourism”. Hong Kong has the potential to combine a mega-event economy with culture, sports, retail, and dining, making the travel experience in Hong Kong more unique, and in turn helping the retail market to overcome challenges.”
Residential market: Transactions yet to sustain at a high level after removal of cooling measures, home prices remain under pressure amid high rate environment
Following the government’s announcement of a complete withdrawal of cooling measures in February, buyer activity noticeably accelerated in March and April. In April, residential transactions jumped to more than 8,500 units, marking the highest monthly figure in nearly a decade. However, transaction volume declined to around 5,550 units in May. Although activity remains more active than before the cooling measures were lifted, the market is still constrained by factors such as delayed interest rate cuts and uncertain market conditions. We anticipate that total transactions for Q2 will reach approximately 19,000 units, representing an increase of 93% q-o-q and a 56% y-o-y (see Chart 3). At the same time, developers have been actively launching their new projects after the removal of cooling measures, and some may also offer competitive pricing or discounts to attract buyers. As a result, the spotlight in the residential market remains on the primary market, with first-home sales accounting for 35% of overall transactions for the January to May period.
Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield, mentioned, “The Rating and Valuation Department data shows that overall residential prices started to strengthen in March. However, such growth momentum has not sustained, with the latest data in May recording a monthly drop of 1.2%, bringing a 1.7% year-to-date decrease for the first five months of this year. According to Cushman & Wakefield’s small to medium-sized residential price index, home prices also corrected again in May, while June’s pricing level was 2.5% lower than April’s number, bringing a drop of 3.8% in the first six month. Home prices in all our market segments have declined again in Q2. The price level in City One Shatin, representing the small-sized market, dropped 6.2% q-o-q, while Taikoo Shing, representing the middle-sized market, recorded a 3.4% q-o-q decrease. As for the luxury segment, Residence Bel-Air also saw a 5% decline over the quarter.”
Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield, added, “Looking ahead to 2H 2024, while the interest rate reduction timetable has been further delayed compared to earlier market expectations, even if the Fed implements interest rate cuts in the latter months, it is believed that the adjustment will be limited and banks in Hong Kong may not immediately follow. The high rate situation, combined with the current cautious lending stance of local banks, has hindered a sustained positive impact from the removal of cooling measures. Additionally, developers will actively promote their new home sales in the market during 2H 2024, limiting the price recovery of secondary homes. Consequently, we have revised and lowered this year’s home price forecast, with a decline of 0% to 5% in 2024. However, the rental market has been receiving ongoing support from incoming professionals and non-local students. The rental index has steadily risen since last year, and we expect this trend to continue, with a forecast of a 0% to 5% increase in rents for the full year. As for transaction volume, we expect that around 50,000 housing units will be transacted in 2024, representing a rise of 15% to 20% from last year’s low point.”
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Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.hk or follow us on LinkedIn (
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