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News Release

Hong Kong

Accelerating growth across all property sectors in Hong Kong, despite a relative slowdown in sales volume in 1H11

HONG KONG, 13 July 2011 — Strong consumption and continued corporate expansion growths, along with sustained low interest rate environment and low space availability, all contributed to support accelerating rental and capital value growth across all property sectors in 1H11, according to Jones Lang LaSalle in its Hong Kong Mid-Year Property Review today.
Office Market
After experiencing a record year of net take-up in 2010, Hong Kong’s Grade A office market continued to register strong demand and rental growth through the first half of 2011. The period saw a sustained level of expansion requirements, while moving eastbound remained as a key trend on the back of higher rentals in the core CBD locations. From January to June 2011, overall net take-up amounted to 1.46 million sq ft.

In general, vacancy levels remained low across all sub-markets despite the completion of a few new Grade A-quality buildings. The completion of 1.6 million sq ft (net) of new supply in 1H11 has pulled the overall vacancy rate up by 0.1 percentage point to 4.8%, still below the so-called frictional level. As rents in Central continued to climb to reach their historic peak levels, demand for space in other core locations on Hong Kong Island remained strong, driving vacancy in Wanchai/Causeway Bay down to just 2.3% and that in Hong Kong East to 3.2%. Strong absorption in Tsimshatsui also drove vacancy down to 3.1%.

The tight vacancy environment has put landlords in a good position to bargain for higher rents. Overall rents went up 15.0% in 1H11, with the highest growth seen in Hong Kong East (18.1%), Central (16.4%) and Wanchai/Causeway Bay (13.4%).

The sales market continued to see sustained demand for office properties in 1H11, with several buildings reporting new record-high unit prices during the period. Capital value growth accelerated across all sub-markets, with the strongest growth seen in Wanchai/Causeway Bay (24.1%), followed by Central (23.3%) and Kowloon East (15.8%).

In terms of supply, except for a project in Kowloon East, all commercial Grade A office buildings scheduled for completion in 2011 were completed in 1H11. Although the supply pipeline has widened in the past six months, with the government making available several development sites in Wanchai and Kowloon East for auction/tender, supply over the immediate term remains limited especially on Hong Kong Island.

‘In spite of the strong net take-up posted in 1H11, growing uncertainties in the global economy may slow business growth momentum in the short term as some tenants hold a wait-and-see approach before committing to further expansion plans. The return of spaces upon lease expiry in some individual buildings will prevent vacancy rates from falling fast, as was the case in the past 12 months, although the majority of portfolio landlords in town are still enjoying very healthy occupancy levels. In general, we expect Grade A office rents across all submarkets to climb further in 2H11, but possibly by a slightly slower momentum,’ remarked Gavin Morgan, Deputy Managing Director and Head of Leasing of Jones Lang LaSalle Hong Kong.
Hong Kong Prime Office Indicator – % Change
Capital Values
(Jan–Jun 2011)
(Jan–Jun 2011)
Vacancy Rates
(Jun 2011)


Wanchai/Causeway Bay
Hong Kong East
Kowloon East
Retail Market
Tourism market growth continued to provide strong support to Hong Kong’s retail property sector. According to the Hong Kong Tourism Board, visitor arrivals in the first five months of 2011 increased 14.5% y-o-y. In particular, the number of mainland Chinese tourist arrivals rose by 65.5% y-o-y, while those coming on Individual Visit Scheme (IVS) basis increased by 32.6% y-o-y over the same period. At the same time, rising incomes and low unemployment rates also helped further strengthen local consumer confidence. These combined factors helped boost total retail sales by 23.6 y-o-y to HKD163.1 million in the first 5 months of 2011.
To capture the lavish spending by mainland Chinese tourists, both international and local retailers remained keen in securing retail premises in prime locations for higher market exposure and were aggressive in their rental biddings. The first half of 2011 continued to see both rents and capital values of high street shops setting new record highs, going up by 9.7% and 21.3%, respectively. Rents for premium prime shopping centres and overall prime shopping centres went up 7.9% and 5.5%, respectively, over the same period.
In addition to high-end fashion as well as watch and jewellery retailers, which have been active and fast-expanding trades in recent years, the last few months also saw luxury car dealers signing up retail premises for new establishments. Rolls-Royce, Maybach, McLaren and Bugatti all committed to establishing shops on Hong Kong Island. In one of the largest leasing transactions in 1H11, Abercrombie & Fitch leased an en bloc premise in Central for HKD 7 million a month.
Jeannette Chan, Head of Retail, Hong Kong and Southern China at Jones Lang LaSalle Hong Kong, said, ‘Looking ahead, despite a marginal rise in economic uncertainties and growing inflationary pressure, local consumer confidence is expected to remain strong in general. Tourist consumption will continue to be a key driver for retail revenue growth. The strengthened RMB will also continue to lend support to luxury goods demand in the foreseeable future. These combined to make us believe that retail rents will continue to climb throughout the second half of 2011.’
Hong Kong Prime Retail Indicator – % Change
Capital Values
(Jan–Jun 2011)
High Street Shops
Overall Prime Shopping Centres
Premium Prime Shopping Centres



Residential Market
Over the past 12 months, the government have been imposing austerity measures to better manage overheating risks in the residential sales market. The combined impact from the implementation of a Special Stamp Duty and the higher barriers set for potential buyers through lower loan-to-value ratios led to a relative slowdown in sales market momentum in 1H11. A rounded total of 55,200 residential sale-and-purchase agreements were recorded during the period, reflecting a 16% drop from a year earlier. However, an average of 9,200 transactions per month during 1H11 is still considered healthy compared with the levels previously achieved in 2005, 2006 and 2008 (8,600, 6,800 and 8,000 transactions per month, respectively).

For properties at HKD 20 million or above, a total of 1,260 transactions (preliminary) were recorded in 1H11, which reflects a fall of 33% compared to 2H10 although it went up 7% on a y-o-y basis. These transactions added up to a total consideration of HKD 59.4 billion, down 20% compared to 2H10 and up 11% y-o-y. Despite a slowdown in sales volume, capital values of luxury residential properties increased 16.2% during 1H11. In the leasing market, rents for luxury residential properties also trended up by 4.9% over the same period, mainly as a result of sustained leasing demand from corporate expatriates.

The first half of 2011 saw capital values for mass residential properties increasing by 10.1% due mainly to the combined results of rising household incomes, sustained low holding costs and a tight vacancy market environment. A slowdown in sales momentum, coupled with the tight supply situation, has led to a thinner sales volume in the primary sales market. In the first five months of 2011, a total of 4,700 new units were sold in the primary market, compared with 13,600 units sold in the full-year of 2010.
Hong Kong Prime Residential Indicator – % Change
Capital Values





In spite of the relative slowdown in the sales market, developers remained active in bidding for greenfield sites. Eight residential sites were launched and sold by the government in 1H11, fetching a total of HKD 20.4 billion. These sites, which are mainly due for completion in 2015/2016, will have a potential building capacity of about 800 units.

Joseph Tsang, Managing Director of Jones Lang LaSalle Hong Kong, said, ‘The latest round of loan-to-value ratio restrictions introduced in June led to a relatively quiet sales market towards the end of 1H11 as end-users and upgraders have increasing difficulty in moving up the housing ladder and improving their living environment. These measures are there only to reduce liquidity in the mass and medium residential sales market without affecting much on existing property owners and therefore will hardly lead to falling prices even though local rates for new mortgage loans have started to edge up in the recent months.’

‘Looking ahead in 2H11, we do see some market risks rising but not at hazardous levels. Despite the recent marginal rise in effective mortgage rates, the low holding costs remained intact. In view of the higher loan-to-value ratio requirements and the growing uncertainties in policy and macroeconomic risks, we expect sales volume to remain low for the rest of 2011 while rents are expected to catch up on the back of some buy-to-lease switches. There is also a low chance to see future supply rebounding until 2015/2016, providing strong support to capital values in the foreseeable future.’
Investment Market
The investment market in 1H11 continued to be driven by limited stock, ample liquidity, low interest rates as well as strong rental increase. Despite the higher prices and lower yields, sustained investment demand was seen across all key property sectors.

The austerity measures, as laid down by the government, did not prevent the residential sector from remaining as the focus in the investment market, followed by the office sector. A total of 162 transactions were recorded for properties at over HKD 100 million (excluding land auctions) in 2011, with total considerations reaching over HKD 42 billion. The period also saw limited en bloc sales transactions in the office market, with the sale of Honest Motors Building in Causeway Bay for HKD 580 million being the most notable one.

Joseph Tsang commented, ‘The government’s further control on residential sales has brought about an interesting trend for the investment market, with some investors shifting their attention onto the commercial sectors, including but not limited to industrial and lower-end office properties. As rents continue to climb in these commercial property sectors, we expect to see investment demand remaining strong for the remainder of the year.’

Warehouse Market
In the first five months of 2011, Hong Kong’s total aggregate trade rose by 16.4% y-o-y to HKD 2,809 billion, despite the relative slowdown in external trade in 2Q11, due mainly to the disruption to regional supply chains brought by the 11 March earthquake in Japan as well as a decrease in exports to the US and some EU countries. Nonetheless, the growing demand from non-logistics occupiers and the tight vacancy environment have pushed warehouse rents to reach a new high watermark, eclipsing the previous record high set in 3Q08. Rents for warehouse properties went up 7.1% in 1H11.
As investment demand for industrial and warehouse properties picked up in recent months, capital values rose sharply by 13.6% in 1H11.
Marcos Chan, Head of Research of Greater Pearl River Delta at Jones Lang LaSalle said, ‘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. We expect warehouse rents to rise by 10–15% in the full-year of 2011.’
Hong Kong Warehouse Indicator – % Change
Capital Values
(Jan–Jun 2011)
(Jan–Jun 2011)
+ 7.1%