Hong Kong property rents, the most expensive in the world, will fall in the coming year amid a gloomy economic outlook. The decline will affect both commercial and residential sectors, though retail rents will buck the trend with strong growth next year.
Rents on Hong Kong’s prime office space, labelled as “grade-A”, will fall by 8% in 2012, while offices in so-called premium blocks such as Central and Admiralty will see their rental income tumbling 15% during the year, according to Colliers International, a real estate service provider.
The overall grade-A office rent in the city will fall 8% and its selling price will drop 16%, the firm said. Since the second half of this year, Hong Kong continued to see companies move out of their offices in Central and turn to other areas where office rents are more affordable. The vacancy rate is climbing in many office buildings in the city’s financial district.
“Without substantial economic fundamentals, all that goes up will eventually come down. We are already seeing noticeable weakening signs since the second half of 2011, hence we expect subdued outlook for rents and prices in grade-A office, luxury residential and industrial property sectors in 2012,” Richard Kirke, managing director, of Colliers International Hong Kong, said at a press briefing yesterday.
At the moment, office rents stand at an average of HK$110 per square foot a month in Central and Admiralty; HK$50 to HK$60 in Wan Chai and Causeway Bay; and down to around HK$40 in offices in Tsim Sha Tsui and Kowloon, said Wendy Lau, executive director of office services at Colliers. Those prices are all set to fall.
“While heavyweight global banks and hedge funds prefer to locate in Central, some are likely to split up their offices and move some operations to less expensive areas,” said Lau.
Barclays Capital also projects a downward trend. “Under a soft economic landing scenario, we estimate office rents would fall 10% to 15% over the next two years, whereas a hard landing suggests a 35% to 40% rental fall,” analysts at the bank said in a research note.
Rents in luxury residential and industrial properties will decrease 6% and 4% respectively in 2012. The luxury residential rents went up 7% during the first 10 months this year, but a correction towards the end of the year had dragged the price back to a level similar to that of end 2010, said Colliers.
Despite drops in other categories, retail rents are expected to record 12% growth next year thanks to resilient retail sales in the coming year. “The retail market is supported by buoyant retail sales, achieving over HK$32 billion worth of sales per month in 2011,” said Simon Lo, executive director of research and advisory at Colliers.
He also said the strong sales are largely attributed to continued growth in inbound tourism, which benefits traditional shopping locations in particular. “The retail leasing demand is predominately led by retailers of jewellery, cosmetics, electrical appliances and fashion, which are especially favoured by tourists from mainland China,” Lo said.