Office availability rate drops while high street retail rents continue to recover

• The Hong Kong Grade A office market witnessed positive net absorption for the fourth consecutive quarter in Q3 2024 to reach 324,100 sq ft, bringing the overall availability rate down to 19.3%.
• Core retail district high street rents recorded low single-digit growth q-o-q as leasing momentum gained pace, with banking and financial institutions taking opportunities to expand at prime locations
• The residential market finally saw the hoped-for interest rate cut, yet buyers need more time to digest the news. Housing prices remained under pressure in the still-high rate environment, declining by 6.2% in the first eight months, while total transactions recorded 10,200 units in Q3.

HONG KONG SAR - Media OutReach Newswire - 8 October 2024 - Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets Review and Outlook Q3 2024 press conference.The start of the U.S. Federal Reserve rate cut cycle in September, coupled with the recent rebound in the stock market, sent positive signals to the Hong Kong residential market, with market sentiment and transaction numbers expected to further improve in Q4. The Grade A office market has now recorded positive absorption for four consecutive quarters, and several new lettings of more than 10,000 sq ft were concluded in the quarter, pulling the overall availability rate down to 19.3%. In the retail market, despite falling high street store vacancy and growing rental levels, the change in tourist spending patterns and the northbound travelling of local residents continued to pose challenges to F&B operators, leading to F&B rents adjusting downwards in Q3. Grade A office leasing market: Net absorption remained positive in Q3 2024, while the availability rate fell for the first time in two years Overall Grade A office net absorption recorded 324,100 sq ft in Q3, bringing total net absorption for the first three quarters to around 980,000 sq ft. The total new leasing area in Q3 reached 833,600 sq ft, with Greater Tsimshatsui taking the greatest share at 23%, followed by Greater Central and Kowloon East both at 19%. The banking & finance sector took a 38% share of total leased area, followed by consumer products / manufacturing at 18%, and professional services & real estate at 16%. With no new supply entering the market in Q3 2024, the overall availability rate fell for the first time since Q1 2022, registering 19.3% in Q3 2024. However, Grade A office rents remained under pressure, retreating by 2.4% q-o-q or 4.3% year-to-date (Chart 1). As cost-saving or flight-to-quality moves have become popular occupier strategies, landlords are being more flexible and offering incentives to compete for tenants. Consequently, we expect the rental correction to continue through the remainder of the year, and we forecast overall Grade A office rents to drop in a range of 6% to 8% for the full-year 2024. John Siu, Managing Director, Hong Kong, Cushman & Wakefield,said, "The Hong Kong Grade A office market registered positive net absorption for the fourth consecutive quarter in Q3 2024. We saw numerous new lettings of more than 10,000 sq ft in the quarter, while the overall availability rate fell for the first time since Q1 2022. This suggest that market momentum has gained pace when compared to 2023. Looking ahead, we expect demand from the banking & finance and professional services sectors to gradually recover, if the recent stock market recovery and IPO performance, which are underpinned by the interest rate cut and the macroeconomic policy stimulus from the Chinese mainland government, can sustain through the coming months." Retail leasing market: New leasing activity gained momentum, supporting the overall high street vacancy rate to drop further Hong Kong total retail sales for the January to August 2024 period dropped by 7.7% y-o-y to record HK$249.8 billion, impacted by inbound tourists' and local residents' changing consumption patterns, combined with the strong Hong Kong dollar eroding shoppers' purchasing power when compared to alternative tourist destinations. Among the key retail sales categories, Jewellery & Watches and Fashion & Accessories, formerly popular with tourists, declined 15.8% and 11.0% y-o-y, respectively. The only key retail category to witness positive growth was Medicines & Cosmetics, which climbed 6.8% y-o-y. High street leasing activity gained momentum in Q3, with action by local and international brands picking up on the back of attractive rent offerings at prime locations. The overall high street vacancy rate continued to fall to record 8%, a new lowest level since the pandemic. Vacancy rates eased more notably on the Kowloon side, with Mongkok dropping 2.7 percentage points q-o-q to 8.4%, and Tsimshatsui falling to 9.4%. Vacancy in Causeway Bay remained stable at 2.6%, while Central...