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News Release

Hong Kong and Macau

Jones Lang LaSalle: Encouraging market conditions prevail in 2010 with strong capital values growth recorded across property sectors

Hong Kong, 7 December 2010 – The compounded effect of low interest rates, wealth effect from asset price growth, high global liquidity, and tightened supply has helped maintain the encouraging market conditions succeeded from last year and continued to drive investment demand and capital values high across most of the property sectors in 2010.  As the economy continues to improve, the property market is expected to follow this rising trend in 2011, according to Jones Lang LaSalle’s Hong Kong Annual Property Review.

Office Market
Supported by a positive business sentiment, the Grade A office leasing market experienced buoyant demand in 2010 as a result of strong company expansion and relocation requirements seen in the year.  From January to November 2010, overall net take-up amounted to 3.38 million sq ft, and is expected to reach about 3.7 million sq ft for the full year. This will the highest net take-up in a year since 2000.  Among all districts, Kowloon East was the highest contributor to the net take-up, amounted to 1.59 million sq ft during the first 11 months of 2010, followed by Central (404,085 sq ft) and Wanchai/Causeway Bay (343,624 sq ft).

Growing demand for office space has pushed vacancy down in most districts. As at the end of November 2010, overall vacancy was down to just 4.2%, compared to 7% as of end-2009.  The biggest drop was seen in Kowloon East, which continued to attract flight-to-quality tenants from core-area markets who are upgrading to high-quality and cost-effective premises, driving vacancy for the submarket down to 6.8% as of end-November, compared with 19.9% at the end of 2009.

Although rental in some sub-markets such as Tsimshatsui and Hong Kong East experienced a shaky start to the year, double-digit rental growth was recorded across all Grade A office sub-markets for the year. Falling vacancies and strong take-up have led landlords to become aggressive in raising rents. Overall Grade A office rents rose by 27.5% in the first 11 months of 2010, and those in Central rising by 33.3% over the same period.

Rising rentals, ample credits, combined with a sustained low interest rate environment continued drive investment demand for Grade A office properties. Grade A office capital values rose by 28.0% from January to November 2010.

‘The vibrant economy will lead to sustained company expansion and new set-up demand, driving vacancies down further in 2011. The running short of new Grade A office space in the years ahead will also ensure a tight vacancy situation down the road, providing great support to rental growth in the short-to-medium term. As such, we expect rentals will remain on a strong upward trend in 2011, rising by 30–35% in the overall market. The trend of decentralization will likely continue as space availability in the core submarkets reduces and as emerging submarkets like Kowloon East continues to mature.’ said Gavin Morgan, International Director and Head of Markets, Hong Kong.

Hong Kong Prime Office Indicator - % Change

Capital Value
(2010 Jan - Nov) *
Rental Value
(2010 Jan - Nov) *
Vacancy Rate
(November 2010)
Wanchai / Causeway Bay
Hong Kong East
Kowloon East

* Preliminary figures

Retail Market
The twin-turbo engine of strengthened local consumption and strong tourist arrival growth helped boost Hong Kong’s retail market in 2010. The city’s total retail sales grew by 18.3% in the first 10 months of 2010 with private consumption expenditure rising by 5.7% y-o-y in 1-3Q2010. At the same time, the inbound tourism market also experienced strong growth momentum, with total visitor arrivals growing by about 23% y-o-y to 29.4 million in the first 10 months of 2010. 


Demand for big-ticket items was particularly strong with items such as motor vehicles, jewellery and watches, electrical and photographical products all registering strong retail sales growth during the year.


Retailers from all over the world continued to show interest in Hong Kong’s retail market, partly to ride on the city’s strong retail sales growth and partly to use Hong Kong as a springboard for the Mainland China markets. The year saw strong leasing demand from both overseas and local retailers for prime retail premises in the core shopping districts. 


Rents for high street shops grew by 15.0% in the first 11 months of 2010, while those for Overall Prime and Premium Prime shopping centres rose by 10.2% and 12.8%, respectively,  over the same period.

Hong Kong Prime Retail Indicator - % Change

Capital Value
(2010 Jan - Nov) *
 Rental Value
(2010 Jan - Nov) *
Prime Street Shops 
Premium Prime Retail Centres 
Overall Prime Retail Centres 

 * Preliminary figures

The year also saw very strong investment demand for high-street shops as investors leverage on the strong income growth potential at rental reversions. As such, capital values surged by 36.2% in the first 11 months of 2010.

‘The employment and income growth will continue to support domestic consumption growth in 2011. The bullish consensus views on stock market performance will also extend the wealth effect and drive demand growth for big-ticket items. At the same time, the sustained appreciation of the RMB will continue to induce cross-border spending from Mainland China. In the eyes of foreign retailers, Hong Kong will likely remain a focal destination in Asia, the China region in particular. We expect to see retailers from overseas continue to look for business opportunities in Hong Kong in the year ahead. In line with other property sectors, future supply of shopping centres will remain tight in Hong Kong, providing support to further rental growth in 2011,’ commented Marcos Chan, Head of Research, Greater Pearl River Delta.

Residential Market
2010 saw the government’s growing concerns over a potential residential asset bubble, with a number of restrictive measures being launched through the year. Initially, sales demand was not seriously affected until late November when the latest round of cooling measures kicked in to substantially lift the cost of short-term investment. The exact impact of how these new measures will affect residential sales demand is yet to be seen, but anecdotal evidence suggests a notable drop in sales transaction volume is likely.

The first 10 months of 2010 saw over 12,425 new units being sold in the primary residential sales market, achieving about 77% of the total sales in 2009 (16,161 units sold in 2009) .

Sales of luxury properties were strong, with both the number of transactions and total considerations exceeding the level of 2009.  In the first 11 months of 2010, a total of 2,785 sales transactions for properties priced at over HK$20 million were recorded (2009: 2,344; up 19%), with total considerations reaching HK$115.5 billion (2009: HK$92 billion; up 25%).

The strong market performance has pushed capital values of luxury and mass residential properties to increase by 19.8% and 19.2%, respectively, in the first 11 months of 2010.  Following the same trend, rents of the luxury properties also increased by an average of 19.3% over the same period. 

‘Given that there is no deterioration in economic conditions, end-user demand will likely remain intact in an ultra-low interest rate environment. However, the recent restrictive measures imposed by the Government may pull short-term investment to a complete stop while putting some cautious long-term investors on the side. The result could be a noticeable drop in transaction volume in 2011.  Having said that, low holding costs and tight future supply will prevent capital values from a free fall even though short-term investment demand is reduced. We expect residential prices will see more stable growth in 2011, with luxury residential capital values growing by a further 10% through the year. The luxury residential leasing market will continue to benefit from corporate expansions, which will lead to stronger expatriate leasing demand. Luxury residential rents will likely grow by a further 10-15% in 2011,’ commented Joseph Tsang, International Director and Head of Capital Markets, at Jones Lang LaSalle Hong Kong.

Hong Kong Prime Residential Indicator - % Change

Capital Value
(2010 Jan- Nov)* 
 Rental Value
(2010 Jan- Nov)*

 * Preliminary figures

Warehouse Market
Hong Kong’s external trading environment rebounded strongly in 2010 after declining through the challenging year of 2009, largely fuelled by the robust trade in the Asia Pacific region before spreading to the US and EU markets. In the first three quarters of 2010, Hong Kong’s aggregate trade had grown by over 20% to HK$5,282 billion. The strong recovery of the external trade sector was reflected in the warehouse leasing market where vacancy lowered to 4-4.5% as of the end of November 2010, mainly driven by the expansion and new set-up demand from third-party logistics operators. As a result, warehouse rents rose by an average of 8.1% in the first 11 months of 2010. The same period saw capital values of warehouse rising by 12.8%.

Marcos Chan, Head of Research, Greater Pearl River Delta of Jones Lang LaSalle said, ‘Looking ahead, Hong Kong’s external trade and retail sectors will continue to show steady improvement in 2011, ensuring a healthy level of leasing demand for warehouse spaces.  Although global trade disputes and RMB appreciations may affect China’s exports, the nation’s aggregate trade will be offset by substantial growth in imports into China as the country rebalances its economy toward stronger domestic consumption.  In view of the supply and demand imbalance, warehouse vacancies will continue to tighten, providing further growth momentum for rents and capital values in 2011. We expect both rents and capital values will grow by 10-15% in 2011.'

Hong Kong Warehouse Indicator - % Change

Capital Value
(2010 Jan - Nov) * 
Rental Value
(2010 Jan - Nov) *

 * Preliminary figures

Investment Market
Fuelled by strong economic growth, ample credits, low interest rates, robust rental rebound and tight availability of supply, both end-user and investment demands have been strong across all property sectors in 2010. The total number of sales transactions of over HK$100 million (excluding government land sales) reached 267 in the year to November 2010 (versus 253 in 2009), while total considerations for these transactions  amounting to HK$74.8 billion, up from HK$63.2 billion in 2009. The focus of investment remained on the residential and office sectors, with the total investment lump sum in the two sectors accounting for over 70% of all property sales transactions of over HK$100 million. While local companies and individual investors remained as the key source of demand, there are signs that foreign investment funds have returned to the Hong Kong market.


Joseph Tsang concluded, ‘Looking ahead, the outlook of Hong Kong’s economy remains positive and corporate expansion demand should remain strong. The market’s healthy levels of occupier demand and robust rental growth will continue to draw the interest of investors. In addition, the sustained low interest rate environment, additional inflow of capital into Asia and limited new supply will provide strong support to capital values across all property sectors. However, we expect to see a lower transaction volume in 2011 as restrictive measures by the government will curb short-term investment demands, particularly in the residential market. It is, however, not without risks. While overall market fundamentals remain strong, investors may become more cautious in 2011 in view of the potential volatility in the global capital markets under the shadow of the US’ growing deficit and Europe’s sovereign debt problems.’