The Commercial Real Estate Sector in Hong Kong Continues to Expand at a Rapid Pace in 2011.

 

 

Strong consumption and continued corporate expansion growth, as well as a low interest rate environment and limited space availability, all contributed to accelerating rental and capital value growth across all property sectors in the first half of this year, according to a new report released this week by global real estate consulting firm Jones Lang LaSalle titled the Hong Kong Mid-Year Property Review. for sale qatar

 

Market for Offices

The Grade A office market in Hong Kong continues to see robust demand and rental growth in the first half of 2011, following a record year of net take-up in 2010. The period saw a consistent degree of expansion requirements, with eastern movement remaining a prominent trend due to increasing rental rates in the core CBD areas. Between January and June 2011, the net take-up was 1.46 million square feet.

 

Despite the opening of a few new Grade A-quality buildings, vacancy levels remained low across all sub-markets. The completion of 1.6 million square feet (net) of new supply in 1H11 increased the total vacancy rate by 0.1 percentage point to 4.8 percent, which is still below the so-called frictional level. Demand for space in other core locations on Hong Kong Island remained high as rents in Central continued to rise to historic record levels, driving vacancy in Wanchai/Causeway Bay down to just 2.3 percent and 3.2 percent in Hong Kong East. In Tsimshatsui, strong absorption reduced vacancy to 3.1 percent.

 

Due to the low vacancy rate, landlords are in a strong position to negotiate higher rents. Overall, rents increased by 15.0 percent in 1H11, with the largest increases in Hong Kong East (18.1%), Central (16.4%), and Wanchai/Causeway Bay (14.4%). (13.4 percent ).

 

In the first half of 2011, the sales market for office properties remained strong, with some buildings reporting new high unit values. Capital value increase rose in all submarkets, with Wanchai/Causeway Bay (24.1%) leading the way, followed by Central (23.3%) and Kowloon East (23.3%). (15.8 percent ).

 

Except for one project in Kowloon East, all commercial Grade A office buildings slated to be built in 2011 were completed in the first half of 2011. Despite the fact that the supply pipeline has widened in the last six months, with the government auctioning or tendering many development sites in Wanchai and Kowloon East, supply in the short term remains constrained, particularly on Hong Kong Island.

 

'Despite the robust net take-up in 1H11, the global economy's mounting worries may hamper company growth momentum in the short term, as some tenants take a wait-and-see strategy before committing to additional expansion plans.' Although the majority of portfolio landlords in town are currently enjoying very good occupancy levels, the return of spaces upon lease expiry in some specific buildings will prevent vacancy rates from falling as quickly as they did in the previous 12 months. In general, we expect Grade A office rents to rise in 2H11 across all submarkets, although at a slower pace,' said Gavin Morgan, Deputy Managing Director and Head of Leasing at Jones Lang LaSalle Hong Kong.

 

Market for Retail

 

The retail property sector in Hong Kong has continued to benefit from the rise of the tourism market. According to the Hong Kong Tourism Board, visitor arrivals grew 14.5 percent year on year in the first five months of 2011. Over the same period, the number of mainland Chinese tourists arriving climbed by 65.5 percent y-o-y, while those arriving under the Individual Visit Scheme (IVS) climbed by 32.6 percent y-o-y. At the same time, increased earnings and low unemployment rates aided in bolstering consumer confidence in the area. In the first five months of 2011, these factors combined to enhance total retail sales by 23.6 percent year on year to HKD163.1 million.

 

Both international and local businesses were active in their rental biddings to get store premises in prime locations for more market exposure in order to exploit the lavish spending by mainland Chinese tourists. Both rents and capital values of high street retailers achieved new record highs in the first half of 2011, increasing by 9.7% and 21.3 percent, respectively. Over the same time period, rents for premium prime shopping centers and overall prime retail centers increased by 7.9% and 5.5 percent, respectively.

 

Aside from high-end fashion and watch and jewelry merchants, which have been busy and rapidly increasing businesses in recent years, luxury auto dealers have been signing up shop space for new businesses in recent months. Rolls-Royce, Maybach, McLaren, and Bugatti have all announced plans to open stores on Hong Kong Island. Abercrombie & Fitch leased an en bloc premise in Central for HKD 7 million per month in one of the highest leasing transactions in 1H11.

 

'Looking ahead, despite a small rise in economic uncertainty and rising inflationary pressure, local consumer confidence is projected to remain solid in general,' said Jeannette Chan, Head of Retail, Hong Kong and Southern China at Jones Lang LaSalle Hong Kong. Tourist spending will continue to be a major source of revenue for retailers. In the near term, the strong RMB will continue to underpin demand for luxury products. These factors together lead us to think that retail rents will continue to rise in the second half of 2011.'

 

Market for Investments

 

Limited stock, adequate liquidity, low loan rates, and high rental growth continued to fuel the investment market in 1H11. Despite rising prices and falling yields, investment demand remained strong across all major property sectors.

 

The government's austerity measures had no effect on the residential sector's dominance in the investment market, which was followed by the office sector. In 2011, there were 162 transactions for properties for more than HKD 100 million (excluding land auctions), with total considerations exceeding HKD 42 billion. In the office market, there were a few en bloc sales, the most prominent of which being the sale of the Honest Motors Building in Causeway Bay for HKD 580 million.

 

'The government's tightening of controls on residential sales has resulted in an interesting trend in the investment market, with some investors moving their focus to commercial sectors such as industrial and lower-end office properties,' said Joseph Tsang. We expect investment demand to remain high for the rest of the year as rents in these commercial property sectors continue to rise.'

 

Market in a Warehouse

 

Despite a slowing in foreign trade in 2Q11, Hong Kong's overall aggregate commerce increased by 16.4% y-o-y to HKD 2,809 billion, owing primarily to the interruption to regional supply chains caused by the 11 March earthquake in Japan, as well as a decline in shipments to the US and some EU nations. Despite this, rising demand from non-logistics occupiers and a tight vacancy market have driven warehouse rents to new highs, surpassing the previous high established in 3Q08. In the first half of 2011, warehouse rents increased by 7.1 percent.

 

Capital values for industrial and warehouse assets increased by 13.6 percent in 1H11, owing to increased investment demand in recent months.

 

'Although the prolonged slow growth in the US and rising uncertainties in Europe remained as key concerns for many traders and logistics operators, low existing space availability and limited future supply are expected to provide further support to rental growth in the remainder of 2H11,' said Marcos Chan, Head of Research for the Greater Pearl River Delta at Jones Lang LaSalle. In the full year of 2011, we expect warehouse rents to grow by 10-15%.'