Hong Kong’s Leasing Activity Picked up in Q3 2017

Hong Kong’s leasing activity picked up in Q3 2017, with net absorption amounting to 352,000 sq. ft., according to CBRE Limited’s MarketView report for Hong Kong.

Demand from Chinese companies in Greater Central accounted for just 10% of new leasing activity in the submarket this quarter compared to 34% in Q2 2017. Co-working space operators remained active and completed sizable deals in Grade A and Grade B premises.

Retail sales increased 3.3% y-o-y in July and August combined, bringing y-t-d growth back to positive territory. Demand this quarter was led by cosmetics firms, while the recent improvement in luxury goods sales also prompted some expansion from selected high-end labels. The overall rental decline is forecast to be under 4% in 2017. Growth will be flat in 2018.

In the industrial sector, leasing activity mainly involved relocation demand. The completion of China Merchants Logistics Centre in late-September pushed up vacancy to 5.2%, a 13-year high.

CBRE Research expects rents for ramp-access buildings to remain under mild pressure but this will be offset by rental increases for cargo-lift access facilities.

As for investment, only 21 office transactions, the lowest total in five quarters, were registered in Q3 2017 as further yield compression resulted in near negative carry conditions. Activity in the industrial sector is expected to pick up following the government’s announcement that it is considering reintroducing the Industrial Revitalisation Scheme.

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