Office and retail markets active but caution grows as trade tensions increase

October 09, 2018 - 03:55
Office and retail markets active but caution grows as trade tensions increase

  • New officecompletions pushed the overall net absorption to new quarterly high
  • Officerents grew across the board but the pace has slowed, as new leasingconcentrated in non-core areas
  • Retailmarket was robust but sentiment may change in view of trade tensions.


HONG KONG,CHINA - Media OutReach - October8, 2018 - Office rents continued to grow across the board in Q3, but the growthhas slowed compared with the last two quarters, as the business sectorconsidered the impacts brought by the Sino-U.S. trade tensions. The tradetensions also affected the retail leasing market, which had been robust in 2018until consumer sentiment began to cool over the summer and retailers becamemore prudent. However, the recent launch of the Express Rail Link in Hong Kong isexpected to boost the tourist volume, as noted by Cushman & Wakefield, aglobal leader in commercial real estate services.


The territory-wide net Grade A officeabsorption rose to 931,810 sq ft in Q3, a three-year quarterly high, mainly dueto the good pre-leasing performance of two newly-completed Grade A buildings inHong Kong East and Hong Kong South. However, negative absorption was recordedin Greater Central (-117,633 sq ft) and Wanchai/Causeway Bay (-94,380 sq ft)due to several sizable tracks of stock returned to the market, while Hong KongEast (675,612 sq ft) and Kowloon East (213,387 sq ft) led the pack inabsorption among all submarkets. MrKeith Hemshall, Cushman & Wakefield's Executive Director, Head of OfficeServices, Hong Kong, commented, "Business activity and expansionslowed a bit in view of the trade tensions and its possible impact. Howevercorporations are still driven by cost-savings behind their relocationexercises, and they prefer new supply. Thus the leasing of new office space innon-core areas was active in Q3."


Greater Centralremained the costliest CBD in the world with monthly rents standing at HK$137.9per sq ft, although the pace of growth in rentals in Greater Central slowed inQ3. But leasing demand in the CBD has been constrained by a lack of supply morethan by the rising rentals, especially for PRC companies who remained keen onseeking prime space. Mr John Siu,Cushman & Wakefield's Managing Director, Hong Kong, said, "GreaterCentral's availability stood at 4.5%, still a tight level. We expect thelimited availability and high rents in core areas will drive leasing demand tonew supply in non-core office areas over the near term. In fact, thesubstantial absorption in Hong Kong East, Kowloon East and Hong Kong South inQ3 has already supported a stable growth in rents in those submarkets. As forthe demand side, in contrast to the decentralization of MNCs, the co-workingand fintech sectors are expected to be relatively active in leasing core space,in order to increase market share and to raise their corporate profiles. Thiswill be a trend to watch for the coming quarters."


Retail sales in the first eight months of 2018 had been robust,led by a 22.2% year-on-year growth in sales of jewelry & watches. A surgein PRC tourists in August contributed to a year-on-year growth of 13.8% intourist volumes from January to August. These positive factors supported aquarterly increase in retail rents from 0.7% to 1.4% in most core areas exceptfor Central where rents dropped by 1.8%.


Vacancy in core locations generally improved in Q3, with demandsupported by relocation requirements. However, demand remained weak in Centralas vacancy there worsened to 7.1% from 4.3% in Q2. Meanwhile, the correction inF&B rents continued in Q3 by 0.6% to 2.2% despite a growth in F&Bspending.


Mr Kevin Lam,Cushman & Wakefield's Executive Director, Head of Retail Services, HongKong, said, "Retail indicators up toAugust reflected a robust performance of the market since the beginning of thisyear. However, we expect the market to come under pressure in the next quarterin view of the trade tensions and potential threats such as the depreciation ofthe Renminbi which has come down by 8.7% against the Hong Kong dollar sinceApril, and a broad reduction of import tariffs in the Mainland since July, bothof which would undermine the price advantage of Hong Kong. Despite the recentlaunch of the Express Rail Link which should help to boost the volume ofMainland tourists, we maintain a conservative view on the outlook of the retailleasing market in the coming months."


About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading globalreal estate services firm that delivers exceptional value by putting ideas intoaction for real estate occupiers and owners. Cushman & Wakefield is amongthe largest real estate services firms with 48,000 employees in approximately400 offices and 70 countries. Across Greater China, there are 20 officesservicing the local market. The company won four of the top awards in theEuromoney Survey 2017 & 2018 in the categories of Overall, AgencyLetting/Sales, Valuation and Research in China. In 2017, the firm had revenueof $6.9 billion across core services of property, facilities and projectmanagement, leasing, capital markets, advisory and other services. To learnmore, visit orfollow us on LinkedIn (