Bullish Hong Kong property outlook for 2013

Cushman & Wakefield predicts higher property prices across the market.

The world's largest privately owned real estate services firm said a recovery in the Chinese economy and improving global demand will bolster growth in Hong Kong’s real estate market this year.

Cushman & Wakefield said that China's recovery and its rising domestic consumption will bode well for Hong Kong's economy in 2013. While this will fuel the trade sector, it will also lure more Mainland Chinese to Hong Kong for both business and leisure.

Export growth in Hong Kong will rise this year and the economy will see sound performance of the retail and tourism sectors. Property prices will be supported by these improvements and the market can also expect healthy demand from occupiers in 2013.

Office demand remains healthy and will continue to facilitate rental growth in 2013. The overall office leasing market slightly exceeded expectations in 2012.

Demand remained healthy enabling overall office availability to remain below 5% and on an aggregate level rents increased by 8.9%. While Greater Central experienced a slowdown in demand and a sizable rental decline as was widely anticipated, other districts saw positive demand and this underpinned low availability and stable to rising rents.

In Greater Central, rents declined by 16.8% in 2012 to HK$98.43 per square foot per month. Landlords here felt the pinch of the debt crisis, economic slowdown and ensuing consolidations in the banking and finance sector.

The drop in demand for Grade A office space in Greater Central helped push up the district's office availability rate to 7.3% as at end 2012, up from 5.1% a year earlier.
"The Greater Central office market, despite the slight increase in availability, still has high occupancy and supply will become very tight again as the economy builds on its recovery. I expect that this market will still be under pressure in 2013 but will begin to recover starting in early 2014,” said John Siu, Executive Director of Cushman & Wakefield (Hong Kong),

The Kowloon market continued its rapid expansion in 2012. Strong office demand pushed the Kowloon office availability rate to a record low in 2012 and the rate remained below 3% by the end of the year.

Extremely low availability allowed for stable to healthy rental growth across the Kowloon market with expedited growth notably occurring in the second half of 2012. Kowloon East was the strongest performing market with annual rental growth of 27%.

Looking more closely at overall office demand, the amount of new lease area in 2012 totaled 4.06 million square feet, an increase of 11.8% over the amount recorded in 2011.

Apart from Hong Kong East, all districts recorded an increase in new lease area over the past 12 months.

Cushman & Wakefield anticipates that rents will still experience some downward pressure in Greater Central due to slightly elevated availability and an overall shortfall in demand. Greater Central rents are expected to fall by up to an additional 10% over the coming 12 months.

The retail property market outperformed the other sectors in 2012 as expected with no major shortfall in retailer demand and strong rental growth. Retail sales, in real terms, posted slower growth of 7.1% year-on-year through the first 11 months of 2012.

Luxury sales, represented by sales of watches, jewelry and valuable gifts, realized negative year-on-year growth for five out of seven consecutive months through November 2012.

Nonetheless, the retail market is still expanding and continues to benefit from strong tourism performance, whereas total and Mainland Chinese arrivals increased by 16.1% and 24.4% year-on-year, respectively, in 2012 through November.