- Retail sentiment continues to rebound, with high street rents maintaining low-single-digit growth, vacancy rates further dropping across districts, and the pharmacy sector the most active for expansion
- Overall Grade A office net absorption in Q2 recorded -172,700 sq ft as leasing activity is yet to rebound significantly, some tenants taking advantage of lower rents for flight-to-quality moves
- Initial boost from border reopening on residential market fades, as high interest rate environment suppresses housing transactions and price performance
Hong Kong's regular economic activity levels have gradually resumed as the city fully reopened its border, supporting a recovery of tourist spending in the retail market. Total retail sales in the first five months of the year were up 21.0% y-o-y. However, the office leasing market has yet to see a notable rebound, with negative absorption continuing into Q2. Residential buyers have become more hesitant to enter transactions given the higher interest rates.
Office Market Key Takeaways
- Negative net absorption improved at 172,700 sf in Q2,compared to 248,200 sf in Q1
- Overall rents continued to decline, with tenants taking advantage of lower rents for upgrading
- Banking & Finance remains the leader, while Medical / Health / Beauty demand increased
- PRC law firms to become more active in the market for new set-up and expansion activities
- Sino-US relations expected to progress, and to bring potential improvements in business confidence and economic activities
Retail Market Key Takeaways
- Tourists are now seeking new experiences, rather than solely focusing on shopping and dining
- Luxury brands are looking for prime locations for relocation & consolidation when rents are still attractive
- Pharmacies have been the most active in the leasing market after the return of tourists
- Overall rents continued to pick up in Q2 2023, with low single-digit increases across the board
- F&B rents also witnessed ongoing recovery, with rents rising by 5% to 6% in 1H 2023
Residential Market Key Takeaways
- Market sentiment has been cooling since May after a significant recovery in Q1
- The number of residential S&Ps in Q2 2023 dropped 13% q-o-q and 18% y-o-y to around 12,200 units
- The overall residential price index moved down by around 1% in Q2, yet 1H 2023 still recorded around 5% growth
- Full-year residential transaction volume is expected to see an annual increase of 10% to 15% to ~50,000 units
- We expect more price volatility in 2H amid high interest rates, home prices are forecasted to rise by 3% to 7% in 2023
