Hong Kong’s Jiaxia market has a promising future
Our latest Global Vision Report points out that Hong Kong will continue to be the market with the highest rents in the world. The situation in the Grade A office market in Hong Kong has been doubled. On the one hand, it has benefited from tight supply to support demand. On the other hand, it has faced competition from lower rents of Grade A office buildings in Kowloon. Despite this, rents in Grade A office space in Hong Kong will continue to be higher than the 10-year average of nearly 24%.
The report pointed out that all cities are affected by economic slowdown and geopolitical risks, and some cities benefit from the demand for commercial space by technology companies. The completion of several major development projects, coupled with the unstable political environment in recent years, has delayed the construction of some of the developer’s buildings, which has strained the supply of office space in the market and pushed up rents.
The continued growth of rents in global cities is a global trend. Over the years, the development of office projects has been tight, which has brought about the supply of office leasing market, which is consistent with the strong tenant demand, especially affecting the fast-growing technology industry. The author expects that the rental growth is expected to improve, so that more office investors have confidence to enter the investment market, especially considering the tight supply of the global office leasing market.
In 2019, global tenants faced two major contradictions. The Brexit and Sino-US trade wars made it difficult for companies to plan for the future. However, companies are under pressure to expand their market share, recruit talent and expand new markets, so they need to actively address office needs. The availability of new office buildings is limited, and over the years office tenants have realized the need to enter the market this year because they want to set up their future headquarters in their favorite office buildings.
As far as the Hong Kong office market is concerned, although Hong Kong continues to rank first in the world for prime office rents, the Hong Kong market has softened for the first time in 29 months since November 2018. The uncertain trade relationship between China and the United States, coupled with the challenges of the mainland market, has limited the demand for quality office buildings in some mainland enterprises.
Despite this, as Hong Kong continues to build closer ties with the Mainland and Hong Kong has recorded record-breaking initial public offerings to support rents in the Grade A office market in Hong Kong, the rent has fallen slightly, still not far from the peak of rent. . The author expects rents on Hong Kong Island to fall by 1% to 4% this year, while rents for Grade A office buildings in Central are expected to fall by 4% to 7%.
In recent years, the price of commercial properties in Hong Kong has climbed to a new peak. There are still a lot of office buyers. The prime office building in Hong Kong’s core business district (the Central CBD) has the least stock of the world’s major cities, equivalent to only 10% of the prime office space in New York (Manhattan). The author expects that the future supply of new office buildings in Central is very scarce. Due to the tight supply of prime office space in the core area of Hong Kong, the rental yield of prime office space in Hong Kong is only 2% to 3%.
At present, the Grade A office market in Hong Kong is very stable. Although the demand for Chinese-funded enterprises has slowed down in recent months, the vacancy rate of Grade A office buildings is still very low. In recent months, Chinese companies have adopted a wait-and-see attitude due to factors such as “China-US trade". Commercial property transactions in Hong Kong are more cautious and have delayed rental activities. The good news is that Hong Kong has always had less supply, demand is still there, and interest rates are still low. The rate hike is not expected to be high. With the abundant market capital, the office market is still optimistic in the medium and long term.
Compared with Europe, the United States and Asia, Hong Kong is one of the highest areas of global property prices, but it still deserves support. The Hong Kong system is transparent, the legal system is sound, and the property liquidity is high, the tax rate is low, the supply is small but the demand is large, which is beneficial to commercial properties. market. If Hong Kong wants to strengthen its global competitiveness, the government should actively promote and accelerate the expansion of the Central CBD and the development of the Kowloon East CBD2 to attract more companies to move in and settle in. It is also necessary to consider the planning and development of CBD3.
Looking into the future, the new supply will be concentrated in East Kowloon in the future, but I believe that CBD2 cannot replace the status of Central, but will form a synergy with Central. In the long run, the author is still optimistic about the prospects of quality Grade A office buildings in Hong Kong.