Residential Prices and Transaction Numbers Down Amid Interest Rate Uncertainty

• Hong Kong retail market vacancy rates remained stable in Q3, with high street and F&B rents recording low single-digit growth, and jewellery & watches and cosmetics brands predominantly driving expansion
• Overall Grade A office space net absorption remained mired in negative territory at -225,900 sq ft in Q3, although new leasing activity was notably more active compared to the prior two quarters
• Persistent interest rate hikes and a downward stock market trend have slowed residential transactions in both primary and secondary home markets, with prices continuing to decline throughout Q3

HONG KONG SAR - Media OutReach - 10 October 2023 - Global real estate services firm Cushman & Wakefield today published its Hong Kong Property Markets Review and Outlook Q3 2023 report. Supported by increased visitor spending, retail market sentiment continued to pick up in the quarter, with total retail sales achieving HK$270.5 billion for the January to August period, up 19.3% y-o-y. Less positively, Grade A office market net absorption remained in negative territory, with the overall availability rate rising to 17.7% and prompting downward rental adjustments. In the residential market, unfavorable factors such as persistent interest rate hikes and a downward trend in the stock market continued to weigh on transactions, contributing to price declines. Office Market — Q3 Net Absorption Remained Negative, Exerting Further Pressure on Rents Amid global economic uncertainties, Hong Kong Grade A office market net absorption continued to soften as some firms further downsized spaces or surrendered leases. All submarkets except Greater Central recorded negative absorption in Q3, pulling overall absorption down by 225,900 sq ft q-o-q and 646,800 sq ft YTD. As a result, the overall office availability rate was pushed up to 17.7%, forcing rents to adjust downwards by 1.7% q-o-q and 5.5% YTD, with more notable declines in non-core submarkets such as Hong Kong East and Kowloon East. John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield said: "There was a notable increase of around 40% in new lettings, by NFA, in Q3 compared to the previous quarter, including several mega-sized transactions in Kowloon East and pre-leased cases that garnered attention in the market. The share of new lettings by industry sector in Q3 was relatively balanced across all sectors. The TMT sector at 21% emerged as the most active, followed by consumer/ manufacturing at 18%, banking and finance at 18%, the public sector at 13%, and the professional services sector at 11%. These double-digit market shares reflect that a range of firms seized opportunities for consolidation and upgrading in the period while rental rates are attractive. "There has also been a marked increase in new leasing activities from mainland China firms in Greater Central since the border reopening, accounting for a 36% share of new lettings in the submarket in 2023 YTD, a substantial rise compared to the 17% share seen in 2022. We expect that mainland China companies will continue to bring in new demand and contribute to the recovery of the leasing market. We maintain our original rental forecast of a decline in the range of -5 to -7% for the year." Retail Market — Jewellery & Watches and Cosmetics Retailers Relatively Active, High Street Rents Rose Steadily, Vacancy Rates Remained Broadly Stable Hong Kong's retail market has continued its recovery, supported by spending from inbound visitors. From January to August, total retail sales reached HK$270.5 billion, a notable y-o-y increase of 19.3% compared to last year's low base. Retail categories popular with tourists experienced the most significant growth, such as Jewellery & Watches at 63.1%, Fashion & Accessories at 46.7%, and Medicines & Cosmetics at 40.3%. Nevertheless, a gap to pre-pandemic sales levels remains. Retailers in jewellery and cosmetic sectors, including local and mainland China brands, have been actively seeking expansion opportunities in core districts. The overall high street vacancy rate remained broadly stable at 9% in Q3. Tsimshatsui recorded two significant leasing transactions, lowering the submarket's vacancy rate by 1.2 percentage points q-o-q to 11.9%. Causeway Bay and Mongkok maintained vacancy rates of 5.3% and 10.9% respectively, while Central's vacancy moved up by 1.5 percentage points to 8.5%. With the ongoing improvement in the retail market, high street rents have risen steadily, by around 1% to 2% q-o-q across submarkets, while YTD growth was strongest in Central at 9.1%. In the F&B sector, rents in key retail submarkets also recorded slight q-o-q increases, ranging from 0.1% to 0.4%. Kevin Lam, Executive Director, Head of Retail Services, Agency & Management, Hong Kong, Cushman & Wakefield stated,...