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...