Bay Of Roses Property
Bay Of Roses Property
Stabilising rents will drive property price growth in the second half of 2009
Hong Kong, 7 July 2009: International property consultancy firm Knight Frank expects stabilising rents to drive growth in Hong Kong’s property prices in the latter half of 2009.
By the end of June this year, prices for Grade-A offices, prime shops and luxury homes had rebounded 39.1%, 20.7% and 18.0%, respectively, from their troughs after the recent financial downturn. The rebound in property prices in the second quarter of 2009 was mainly driven by a rally in global stock markets; the improving risk appetite of investors; a loosening of credit policy by commercial banks; near-zero interest rates on local deposits; and an inflow of foreign capital.
Knight Frank says stabilising rents will be a key driver in property price growth in the second half of 2009. There are signs that rents of various types of property in Hong Kong are bottoming. The first sector to emerge out of the downturn was the residential market. Luxury residential rents bottomed in April, then rose by a total 5.1% in May and June.
The rebound in the residential leasing market can be traced to a number of factors. The rise in Hong Kong’s unemployment rate has shown signs of slowing recently. The latest unemployment rate was 5.3% — the first time it has not risen since August 2008. Multinational corporations have begun relocating staff to Hong Kong again, to capitalise on opportunities arising from the resilient Mainland economy. For instance, one foreign financial institution shifted more than 40 employees from Japan to Hong Kong. This trend, if it continues, will lift the demand for luxury residential units. Also, instead of returning to their homelands, many unemployed expatriates have chosen to stay in Hong Kong to seek jobs, while relocating to less costly accommodation. This lends support to the mid-priced luxury residential leasing market.
Rents of prime street shops — after dipping about 9% during the last three quarters — also showed signs of stabilising recently. Hong Kong residents’ high levels of savings and low levels of debt, as well as a decent growth in Mainland visitors, explain the better-than-expected performance of the retail market during the financial crisis and the resilience of retail property rents. The decline in retail sales volume narrowed from double digits in February to 6.4% in May.
The decline in Grade-A office rents narrowed from 14.9% during the first quarter of this year to 8.8% in the second. At the beginning of the year, many landlords cut rents aggressively to retain tenants. As the decline in office rents has taken a sharper path than expected, the entire down-cycle may actually be over sooner.
Kowloon East is set to be the first district to see its office rents reach a trough. With enterprises relocating from core to non-core business districts to reduce occupation costs, the drop in Grade-A office rents in Kowloon East (including Kwun Tong and Kowloon Bay) slowed significantly from 13.6% in the first quarter to 0.6% in the second.
In the short term, office rents in core areas will continue to be under downward pressure, as the office space being surrendered by financial institutions has yet to be fully absorbed. However, as many companies appear to have completed their restructuring and downsizing, Grade-A office rents are expected to bottom in the fourth quarter of the year.
The number of large-scale office, retail and industrial property transactions worth over HK$100 million surged from 11 during the fourth quarter of 2008 to about 40 during the second quarter of 2009. The total value of sales also grew sharply from about HK$3 billion to over HK$9 billion. Both sales volume and value in the second quarter bounced back to levels last seen before the onset of the recent financial crisis.
Knight Frank believes large-scale sales will continue to be robust in the coming months, on the back of low interest rates and the loosening of credit policies by commercial banks.
About the Author
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner, Newmark Knight Frank, operate from 207 offices, in 43 countries, across six continents. More than 6,340 professionals handle in excess of US$886 billion worth of commercial, agricultural and residential real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants.
Knight Frank has a strong presence in the Greater China property markets, with offices in Hong Kong, Beijing, Shanghai, Guangzhou and Macau, offering high-quality professional advice and solutions across a comprehensive portfolio of property services. For further information about the Company, please visit www.knightfrank.com.hk.
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