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News Release

Hong Kong and Macau

Jones Lang LaSalle: Outlook Across All Property Sectors Remains Buoyant in Second Half of 2010

A sustained low interest rate environment, high cash liquidity, strong rental rebound and tight vacancies all combined to keep investment demand high. 1H10 saw capital values and rents rising fast across all property sectors, according to Jones Lang LaSalle in its Hong Kong Mid-Year Property Review today.

Office Market
The Grade A office leasing market was active in the first half of 2010, with overall net take-up already exceeding the entire total for 2009. Companies continued to relocate and consolidate their businesses to the non-core markets such as Kowloon East, which continued to attract flight-to-quality tenants from core-area markets due to rental cost savings.
As a result, total net take-up in Kowloon East was boosted to 1.09 million sq ft in 1H10, the highest level among all sub-markets in Hong Kong. Vacancy rate in this sub-market also fell significantly to 11.4% from its 2008 peak of 27.9%, with most of new buildings recording high occupancy rates in the same period. Insurance companies were the most active in relocating and expanding in Kowloon East. One of the largest transactions in the first half was AXA’s leasing of 190,000 sq ft (gross) in Landmark East as facilitated by Jones Lang LaSalle.
Amongst the core markets, Wanchai/Causeway Bay recorded the biggest net take-up of about 188,000 sq ft in 1H10, while Central recorded a net take-up of about 79,000 sq ft owing to the strong demand from banking and finance sector tenants. There was also a rising trend of Mainland Chinese companies setting up offices in Central. Relocation within Central was rife in 1H10.
Rental growth was recorded across all Grade A office sub-markets, with overall rents rising by 13.5% in 1H10. The sales market remained active on the back of a sustained low interest rate environment and rising rentals. Stronger investment demand helped push capital values high, rising by an average of 12.2% in 1H10.
'Improving economic conditions and low vacancies are set to keep rentals on an upward trend in 2H10. Core submarkets have outperformed in 1H10 and we expect a relative slowdown in growth momentum in 2H10. However, non-core submarkets will pick up in rental growth,’ said Gavin Morgan, International Director and Head of Markets at Jones Lang LaSalle.
Hong Kong Prime Office Indicator (% Change)
Capital Value(1H10)
Vacancy Rate(1H10)
Vacancy Rate
(End–June 2010)
Central  16.3% 17.5% 4.4 %
Wanchai / Causeway Bay 
Hong Kong East  6.1% 4.2% 2.9%
Kowloon East 
Retail Market
Retail Market
As the macro environment picked up further in 1H10, with GDP rising strongly and unemployment rates falling, market sentiment improved and wealth effect took place. Consumer confidence indices rose to post-crisis highs and private consumption expenditure grew by a strong 6.5% y-o-y in 1H10. The inbound tourism market also improved with visitor arrivals growing by almost 20% y-o-y in the first five months of 2010.
Sustained by this remarkable pick-up in local consumption and exceptional growth in inbound tourism, Hong Kong’s total retail sales went up 18.3% y-o-y to HKD 132 billion in the first five months of 2010. In particular, sales of big ticket items such as motor vehicles, jewellery and watches was particularly strong.
It was common to see retailers snapping up prime shops in core shopping areas in 1H10 so as to secure good exposure and build brand identity. A broad range of foreign retailers expanded and established new operations in Hong Kong over the same period.
As a result, leasing of prime shopping centres was strong with a sharp pick-up in rental growth during 1H10. Rents for premium prime shopping centres rose by 8.3% through 1H10, while those for high street shops rose by an average of 7.8% over the same period.
Hong Kong Prime Retail Indicator (% Change)

Capital Value (1H10)

Rental Value (1H10)
High Street Shops
Premium Prime Shopping Centres 
Overall Prime Shopping Centres

1H10 also witnessed very strong investment demand for high-street shops, with a number of properties being sold for over HKD 100 million. Capital values went up 13.4% during the period. 
'Market sentiments will remain strong in the remainder of 2010. The gradual improvement in both the local and global economy will continue to lend support to local consumer confidence. China will remain a major market source for Hong Kong. In view of the promising retail market outlook, retailers are expected to remain in expansion mode in 2H10, holding vacancies at extremely tight levels and pushing rentals up further, likely by 5–10%,' said Jeannette Chan, Head of Retail for Hong Kong and Southern China at Jones Lang LaSalle.
Residential Market
In addition to the stamp duty rise for properties above HKD 20 million, 1H10 saw the government implementing various stricter measures on primary residential sales, all aim to improve market transparency and better regulate the primary residential sales market. Although some of these policy measures might have affected some of developers’ sales strategies, they imposed little negative impact on market demand, and the number of residential Sale & Purchase Agreements was able to stay at over 10,000 per month on average, which is higher than that in 2009 as well as the three-year and five-year averages.
In fact, sales of luxury properties in 1H10 were much stronger than in 1H09. A total of 1,150 properties were sold for over HKD 20 million in 1H10, up 35.7% y-o-y from 1H09, fetching a total of HKD 52.1 billion as compared with only HKD 31.5 billion in 1H09. The first half of 2010 also saw an active primary sales market, with 7,545 new units sold in the primary market during the six-month period.
Strong demand continued to push capital values higher; those for luxury and mass residential went up 8.5% and 9.6%, respectively, in 1H10. Thanks to the rising number of expatriates, leasing demand for luxury residential properties saw a notable improvement in 1H10, pushing rents up by 10.9% during the period.
Hong Kong Prime Residential Indicator (% Change)
Capital Value (1H10)
Rental Value
'Although the mass residential affordability ratio is not far from an alarming level, strengthening economic fundamentals, low interest rates and tight supply are set to leave residential prices on a mild rising trend in 2H10,' commented Joseph Tsang, International Director and Head of Capital Markets, Hong Kong at Jones Lang LaSalle.
'The various luxury residential sites scheduled for public auctions in the next 6–12 months will help set benchmark prices higher, providing good support for spot asset prices. As such, we expect the luxury and mass residential capital values to rise by a further 10% in 2H10, while rents are also expected to rise by a similar magnitude over the period.'
Industrial Market
After declining through much of 2009, Hong Kong’s external trading sector has rebounded strongly in the first five months of 2010, largely fuelled by the widespread economic growth in the Asia Pacific region. Total exports to Asia Pacific region, excluding China, have grown by 30.6% in the YTD.
Occupancy rates in the warehouse market improved mildly through 1H10, with demand largely driven by third-party logistics both in terms of expansion and new set-ups.  As a result, warehouse rents rose 4.0% in 1H10, with the strongest growth seen in Kwun Tong. Capital values also grew 6.2% in 1H10.
Hong Kong Warehouse Indicator (% Change)
Captial Value
Rental Value

Marcos Chan, Jones Lang LaSalle’s Head of Research, Greater Pearl River Delta said, 'Hong Kong’s external trading sector is expected to continue to show steady improvement in 2H10, and retailers are expected to help drive demand for warehousing space, both directly and indirectly. In view of the limited new supply and forecasted demand, vacancy rates are expected to once again tighten, and will provide further upward momentums to rents. We anticipate that transaction volumes will ease but expectations of investors will push capital values to new record highs.'
Investment Market
Despite the strong run-up in capital values in 2009, the investment market remained buoyant in 1H10. Total consideration for property investments over HKD 100 million amounted to HKD 33.9 billion in 1H10, excluding government land premiums. The focus of investment remained on the residential and office sectors. A number of en bloc transactions were recorded during the six-month period, the largest ones being witnessed in the Grade A office market. Although local companies and individual investors remained as the key source of demand, there are signs that foreign funds are starting to return to the Hong Kong market.
Joseph Tsang concluded, 'Looking ahead, we see healthy levels of occupier demand and rental growth to draw the interest of investors. Continued low interest rates, abundance of liquidity and limited new supply will support capital values across all property sectors. However, transaction volumes will moderate relatively in 2H10 as investors become increasingly cautious about the record-high prices and investable stock is reduced. Although liquidity will continue to flow out of Mainland China and foreign funds continue to wade into the market, global capital markets are likely to remain volatile and the impact of major governments’ monetary easing exit strategies are yet to be seen. The outlook of the investment market is still positive, although not without risks at all.'