HONG KONG, July 17, 2013 /PRNewswire/ --
Cushman & Wakefield, the world's largest privately owned real estate services firm, today released the first half of 2013 trends for the Hong Kong office and retail leasing markets and the outlook for the second half of the year.
Improved leasing demand in Greater Central allows availability to drop; rental decline easing
Core markets Greater Central and Wan Chai/Causeway Bay saw revived leasing activity in the second quarter and several banking and financial firms executed expansion plans. This, along with firm demand for Grade A space between 4,000 to 7,000 square feet, enabled the Greater Central office availability rate to register its first decline since the fourth quarter of 2011. Greater Central rents eased by another 1.5% during the first half and are likely to drop by an additional 3.5% in the second half of the year.
Leasing activity in Wan Chai/Causeway Bay and Hong Kong East also improved in the second quarter due to tenants being displaced by redevelopment. After the announcement in March that Sunning Plaza will be redeveloped, tenants in the building began to seek other premises in the district. New projects like 28 Hennessy Road and Hysan Place especially benefitted from this and saw their availability drop sharply in the second quarter. In Hong Kong East, redevelopment and strong demand for non-core office space kept availability below 2.0% in the second quarter. Rents in both districts increased in the first half of 2013, with Hong Kong East rents posting market leading growth of 8.7%.
In Kowloon, market conditions were generally positive. In Tsim Sha Tsui, rents slightly declined by 2.9% over the past six months as expansion and relocation demand declined due to high rents. In Kowloon East, demand for decentralized office space remains strong, pushing availability below 4% and enabling rents to increase by another 7.4% in the first half of 2013. A new project, KCC Tower B, was completed in Kowloon West, adding 451,000 sq ft of net area to the Grade A market.
Although some expansions and space upgrades are being recorded in the market, occupiers are still heavily cost-conscious. Limited new supply and existing low availability continued to fuel rental growth in H1 2013, whereas overall rents increased by 1.4%. Gary Fok, Executive Director, Commercial -- Hong Kong, said, "Banking and financial institutions have slowed their office space consolidation, so office availability in Greater Central slightly decreased in the second quarter. We expect demand to gradually improve and this will cause rents to bottom out towards the end of 2013 or in early 2014. Rents are still at or near their peak in other districts and there are more occupiers wanting to reduce costs. Outside Greater Central, we anticipate that rental growth will slow to between 1% and 4% in the second half of 2013. The total new lease area will drop from 2.1 million square feet in 1H 2013 to 1.2 million square feet in 2H 2013, a decrease of 45%."
Cautious environment has allowed rents to stabilize in the past six months
Strong consumption and tourism growth is supporting much more sustainable retail sales in 2013. In the first five months of 2013, the number of total and mainland China tourist arrivals through May increased by 13.2% and 19.9%, respectively, year-on-year., meanwhile retail sales grew by 14.5% during the same period. However China's slowing and shifting growth, and a still slow U.S. recovery serve as reminders that uncertainties remain. As a result, there have been a growing number of brands and retailers more closely monitoring costs and expansions. This caused a slowdown in leasing activity in the second quarter, particularly among high-end and luxury brands, which can also be attributed to a shift away from luxury purchases by mainland Chinese. Mid to high-end fashion and accessory brands and cosmetic shops are still expanding and the market is still seeing new brands enter the market as they expand their presence in Asia and China.
Local jewelry retailers such as Chow Tai Fook and Luk Fook opened more shops in both prime and secondary locations, but they have shifted their strategy to target the mass market by offering new affordable jewelry collections. Overseas brands continue to establish a footprint in Hong Kong. Topshop opened its flagship store on Queen's Road Central; two new Korean cosmetic brands opened their shops in prime streets in Causeway Bay and Mongkok during the second quarter. Intimissimi, an Italian lingerie brand, will soon open a small flagship boutique in Central.
Michele Woo, Executive Director, Retail -- Hong Kong, said, "Retailers are turning slightly more cautious and landlords are slowly adapting to this changing environment for the last few months. There are fewer new leases in prime locations and slightly rising vacancy in secondary ones. Rents will remain stable, but limited supply and overall healthy demand will keep rents at a high level. We expect a more diverse tenant mix in the market in the next 12 months."
About Cushman & Wakefield
Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 253 offices in 60 countries and more than 15,000 employees. It offers a complete range of services for all property types, fully-integrated on a global basis, including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $3.7 billion in assets under management. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge. In Greater China, Cushman & Wakefield maintains seven market-leading offices in Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen, Hong Kong and Taipei. More information is available at www.cushmanwakefield.com.
