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

  • New office
    completions pushed the overall net absorption to new quarterly high
  • Office
    rents grew across the board but the pace has slowed, as new leasing
    concentrated in non-core areas
  • Retail
    market was robust but sentiment may change in view of trade tensions.


CHINA - Media OutReach - October
8, 2018 -
Office rents continued to grow across the board in Q3, but the growth
has slowed compared with the last two quarters, as the business sector
considered the impacts brought by the Sino-U.S. trade tensions. The trade
tensions also affected the retail leasing market, which had been robust in 2018
until consumer sentiment began to cool over the summer and retailers became
more prudent. However, the recent launch of the Express Rail Link in Hong Kong is
expected to boost the tourist volume, as noted by Cushman & Wakefield, a
global leader in commercial real estate services.


The territory-wide net Grade A office
absorption rose to 931,810 sq ft in Q3, a three-year quarterly high, mainly due
to the good pre-leasing performance of two newly-completed Grade A buildings in
Hong Kong East and Hong Kong South. However, negative absorption was recorded
in 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 Kong
East (
675,612 sq ft) and Kowloon East (213,387 sq ft) led the pack in
absorption among all submarkets. Mr
Keith Hemshall, Cushman & Wakefield's Executive Director, Head of Office
Services, Hong Kong
, commented, "Business activity and expansion
slowed a bit in view of the trade tensions and its possible impact. However
corporations are still driven by cost-savings behind their relocation
exercises, and they prefer new supply. Thus the leasing of new office space in
non-core areas was active in Q3."


Greater Central
remained the costliest CBD in the world with monthly rents standing at HK$137.9
per sq ft, although the pace of growth in rentals in Greater Central slowed in
Q3. But leasing demand in the CBD has been constrained by a lack of supply more
than by the rising rentals, especially for PRC companies who remained keen on
seeking prime space. Mr John Siu,
Cushman & Wakefield's Managing Director, Hong Kong
, said, "Greater
Central's availability stood at 4.5%, still a tight level. We expect the
limited availability and high rents in core areas will drive leasing demand to
new supply in non-core office areas over the near term. In fact, the
substantial absorption in Hong Kong East, Kowloon East and Hong Kong South in
Q3 has already supported a stable growth in rents in those submarkets. As for
the demand side, in contrast to the decentralization of MNCs, the co-working
and fintech sectors are expected to be relatively active in leasing core space,
in order to increase market share and to raise their corporate profiles. This
will 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 surge
in PRC tourists in August contributed to a year-on-year growth of 13.8% in
tourist volumes from January to August. These positive factors supported a
quarterly increase in retail rents from 0.7% to 1.4% in most core areas except
for Central where rents dropped by 1.8%.


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


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


About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global
real estate services firm that delivers exceptional value by putting ideas into
action for real estate occupiers and owners. Cushman & Wakefield is among
the largest real estate services firms with 48,000 employees in approximately
400 offices and 70 countries. Across Greater China, there are 20 offices
servicing the local market. The company won four of the top awards in the
Euromoney Survey 2017 & 2018 in the categories of Overall, Agency
Letting/Sales, Valuation and Research in China. In 2017, the firm had revenue
of $6.9 billion across core services of property, facilities and project
management, leasing, capital markets, advisory and other services. To learn
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