New supply to weigh on office sector rental levels, while core retail high street rents continue to recover

• Grade A office year-to-date (YTD) net absorption as at mid-November recorded 1 million sq ft, with overall rents down by 5.9% in the same period. Rents are forecast to experience further downwards pressure in the 7%–9% range in 2025.
• Prime retail high street store leasing momentum slightly picked up in 2024, with core high street rents rising by 3%–7%. The retail rental level is expected to further increase by 3%–5% in 2025.
• Driven by the rate cut and relaxation of loan-to-value (LTV) ratio, residential market sentiment has improved, and transaction volume is forecast reach 53,800 cases in 2024. If rate cuts continue in 2025, housing prices and transaction volume are expected to rise by 5% and 3%–5%, respectively.
• Capital market sentiment remains cautious with YTD transaction volume of non-residential big-ticket deals recording just HK$28.5 billion as at December 6. The student housing sector is expected to remain as investors' key focus in 2025.

HONG KONG SAR - Media OutReach Newswire - 9 December 2024 - Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets 2024 Review and 2025 Outlook press conference. With the U.S. Federal Reserve initiating an interest rate easing cycle, coupled with the relaxation of the LTV ratio for residential properties, as stated in the Hong Kong government's Policy Address, residential market sentiment has improved. Demand for rental housing assets has also increased, and with the government expanding the non-local student ratio, student accommodation has become a key focus in the city's capital market. In the Grade A office sector, despite positive net absorption for five consecutive quarters, the high availability rate has kept overall rents in a downward cycle. As for the retail market, active new lettings in prime streets have reduced vacancy rates across core districts. Amid the revival of the "multiple entry" Individual Visit Schemes (IVS), we expect core high street rents to continue to recover in 2025. Grade A office leasing market: YTD net absorption reached more than 1 million sq ft, the highest since 2019 In Q4 2024, as at mid-November, Grade A office net absorption slowed to 46,000 sq ft, but still representing the fifth consecutive quarter of positive net absorption, bringing YTD net absorption to more than 1 million sq ft, the highest level since 2019. As no major new office projects completed during the quarter, the overall availability rate edged down to 19.2%, marking the second consecutive quarter of decline. New lettings in Q4 were mainly driven by the Banking & Finance sector, accounting for about 33% of total leased area. However, demand from the education sector rose notably to 12% of total leased area, with examples such as the Hong Kong University of Science and Technology and the University of Hong Kong committing to more than 10,000 sq ft of office space in Manulife Financial Centre and Kingston International Centre in Kowloon East, respectively. Grade A office rents continued to fall in Q4 2024 up to the end of November, by 2.1% q-o-q and 5.9% YTD (Chart 1), to record HK$45.1 per sq ft per month. However, supported by demand from insurance companies, rents in Tsim Sha Tsui fell by just 2.3% YTD, outperforming the overall market average. Chart 1: Rents of Grade A offices in Hong Kong Source: Cushman & Wakefield Research John Siu, Managing Director, Hong Kong, Cushman & Wakefield,said, "The Hong Kong Grade A office market recorded net absorption of 1 million sq ft as at mid-November 2024, while the availability rate has declined for two consecutive quarters, suggesting market sentiment is somewhat improving. Looking ahead in the short-to-medium term, leasing market sentiment in the Grade A office sector will still depend on the overall economic recovery and the performance of the local IPO and stock markets, which could support leasing demand from related and downstream industries. However, as total Grade A office supply is expected to reach 3.5 million sq ft next year, the availability rate is expected to stand at above 20%, and overall Grade A office rents will continue to decline by 7%–9% in 2025." Retail leasing market: New leasing activities underpinned the recovery of high street rents, while Causeway Bay witnessed zero vacancy The change in consumption patterns of tourists and local residents continued to affect the Hong Kong retail market. For the January to October 2024 period, total retail sales in the city recorded HK$312.3 billion, a y-o-y drop of 7.1%. Among the major retail categories, only Medicines and Cosmetics witnessed an increase in sales at 5.7% y-o-y, while sales in the Jewellery & Watches and Fashion & Accessories sectors, formerly very popular with tourists, fell by 15.5% and 10.6% y-o-y,...