Residential Prices and Transaction Numbers Down Amid Interest Rate Uncertainty
- Hong Kong retail market vacancy rates remained stable in Q3, with high street and F&B rents recording low single-digit growth, and jewellery & watches and cosmetics brands predominantly driving expansion
- Overall Grade A office space net absorption remained mired in negative territory at -225,900 sq ft in Q3, although new leasing activity was notably more active compared to the prior two quarters
- Persistent interest rate hikes and a downward stock market trend have slowed residential transactions in both primary and secondary home markets, with prices continuing to decline throughout Q3
HONG KONG SAR – Media OutReach – 10 October 2023 – Global real estate services firm Cushman & Wakefield today published its Hong Kong Property Markets Review and Outlook Q3 2023 report. Supported by increased visitor spending, retail market sentiment continued to pick up in the quarter, with total retail sales achieving HK$270.5 billion for the January to August period, up 19.3% y-o-y. Less positively, Grade A office market net absorption remained in negative territory, with the overall availability rate rising to 17.7% and prompting downward rental adjustments. In the residential market, unfavorable factors such as persistent interest rate hikes and a downward trend in the stock market continued to weigh on transactions, contributing to price declines.
Office Market — Q3 Net Absorption Remained Negative, Exerting Further Pressure on Rents
Amid global economic uncertainties, Hong Kong Grade A office market net absorption continued to soften as some firms further downsized spaces or surrendered leases. All submarkets except Greater Central recorded negative absorption in Q3, pulling overall absorption down by 225,900 sq ft q-o-q and 646,800 sq ft YTD. As a result, the overall office availability rate was pushed up to 17.7%, forcing rents to adjust downwards by 1.7% q-o-q and 5.5% YTD, with more notable declines in non-core submarkets such as Hong Kong East and Kowloon East.
John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield said: “There was a notable increase of around 40% in new lettings, by NFA, in Q3 compared to the previous quarter, including several mega-sized transactions in Kowloon East and pre-leased cases that garnered attention in the market. The share of new lettings by industry sector in Q3 was relatively balanced across all sectors. The TMT sector at 21% emerged as the most active, followed by consumer/ manufacturing at 18%, banking and finance at 18%, the public sector at 13%, and the professional services sector at 11%. These double-digit market shares reflect that a range of firms seized opportunities for consolidation and upgrading in the period while rental rates are attractive.
“There has also been a marked increase in new leasing activities from mainland China firms in Greater Central since the border reopening, accounting for a 36% share of new lettings in the submarket in 2023 YTD, a substantial rise compared to the 17% share seen in 2022. We expect that mainland China companies will continue to bring in new demand and contribute to the recovery of the leasing market. We maintain our original rental forecast of a decline in the range of -5 to -7% for the year.”
Retail Market — Jewellery & Watches and Cosmetics Retailers Relatively Active, High Street Rents Rose Steadily, Vacancy Rates Remained Broadly Stable
Hong Kong’s retail market has continued its recovery, supported by spending from inbound visitors. From January to August, total retail sales reached HK$270.5 billion, a notable y-o-y increase of 19.3% compared to last year’s low base. Retail categories popular with tourists experienced the most significant growth,
such as Jewellery & Watches at 63.1%, Fashion & Accessories at 46.7%, and Medicines & Cosmetics at 40.3%. Nevertheless, a gap to pre-pandemic sales levels remains. Retailers in jewellery and cosmetic sectors, including local and mainland China brands, have been actively seeking expansion opportunities in core districts.
The overall high street vacancy rate remained broadly stable at 9% in Q3. Tsimshatsui recorded two significant leasing transactions, lowering the submarket’s vacancy rate by 1.2 percentage points q-o-q to 11.9%. Causeway Bay and Mongkok maintained vacancy rates of 5.3% and 10.9% respectively, while Central’s vacancy moved up by 1.5 percentage points to 8.5%. With the ongoing improvement in the retail market, high street rents have risen steadily, by around 1% to 2% q-o-q across submarkets, while YTD growth was strongest in Central at 9.1%. In the F&B sector, rents in key retail submarkets also recorded slight q-o-q increases, ranging from 0.1% to 0.4%.
Kevin Lam, Executive Director, Head of Retail Services, Agency & Management, Hong Kong, Cushman & Wakefield stated, “According to the latest Hong Kong Immigration Department data, the number of outbound passenger trips by residents has been surpassing the number of inbound tourist arrivals since the border reopening, with an average of over 3 million net outflows per month, indicating that locals are increasingly spending their money in overseas and in mainland China, diverting their consumption power away from Hong Kong. This trend could potentially hinder the recovery progress of the Hong Kong retail market.
“Meanwhile, we have observed that some mainland retailers have seized the opportunity to expand their footprint in Hong Kong, especially for popular F&B chain brands. In addition, the government has recently launched the “Night Vibes Hong Kong” campaign to stimulate the night-time economy. While these initiatives may contribute to stimulating local consumption in the short term, their effectiveness in boosting the retail market will only be deemed successful if they can be sustained over time. To maintain Hong Kong’s attractiveness as a tourist destination, retailers and mall owners must collaborate in innovative ways to bring in more diverse tenant mixes and experiential retail elements. We would also like to see the government boost efforts to bring in international events, such as concerts and sporting competitions, to the city.”
Residential Market — High Interest Rates and a Weak Stock Market Continue to Dampen Residential Prices and Transaction Numbers, Full-Year 2023 Forecast Now Downgraded to 0% to -5%
Hong Kong’s residential market remained weak in Q3, primarily due to the impact of rising interest rates and the recent downward trend in the stock market, prompting potential buyers to adopt a cautious approach and to stay on the sidelines. The total number of residential property transactions in the quarter was less than 9,200, down 25% q-o-q and 21% y-o-y. As purchasing power has been subdued, developers have offered discounted prices for primary home sales to attract buyers, shifting some purchasing power away from the secondary residential market. In addition, there has been no significant change in the proportion of primary and secondary transactions from January to September, indicating a decline in transactions for both primary and secondary home markets in Q3.
Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield commented, “Based on the latest government data as of August 2023, overall residential prices have recorded a decline of 4.2% for the four months from May to August, with the YTD increase then narrowed to 1.3%, effectively offsetting the majority of the earlier gains following the border reopening. According to Cushman & Wakefield’s latest data, overall residential prices in September had fallen by 0.5% YTD.
“The decline in property prices has further accelerated as developers offered new flats at attractive prices, while secondary sellers were forced to reduce their asking prices to match market expectations. The price level in City One Shatin, representing the mass market, was down by 14.1% q-o-q in Q3. Taikoo Shing, representing the middle market, was down 8.8% q-o-q, while Residence Bel-Air, representing the luxury market bracket, dropped 4.8% q-o-q. Both Taikoo Shing and Bel-Air have fallen below the lowest price point observed last December, with the price correction being particularly noticeable in September.”
Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield, concluded: “In July of this year, major banks in Hong Kong raised interest rates in alignment with the United States. The high interest rate environment has resulted in weak buyer sentiment, leading to sluggish primary sales. Consequently, some developers have resorted to offering primary sales at a discounted rate to attract buyers, in turn exerting pressure on secondary residential prices. In contrast, the residential rental market has outperformed the sales market, driven by leasing demand stemming from Hong Kong’s favorable inbound talent policies. As per the latest government data, the Private Domestic Rental Index, as of August 2023, has risen for seven consecutive months since January, with a YTD increase of 5.6%.
“Looking ahead, the market generally believes that the interest rate cycle has yet to reach its peak. Even if the government reviews and relaxes certain stamp duty measures in the future, although this may bring stability and restore some confidence among potential buyers during the downward cycle, we believe that property prices will continue to fluctuate for a while. We forecast residential prices to fall in a range of 0% to 5% y-o-y for the full year of 2023, while residential transaction numbers will fall at a similar rate to record around 43,000–45,000 units for the year.”
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(From left to right) Kevin Lam, Executive Director, Head of Retail Services, Agency & Management, Hong Kong, Cushman & Wakefield; John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield; Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield and Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield.
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About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in approximately 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2022, the firm reported global revenue of US$10.1 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), Environmental, Social and Governance (ESG) and more. For additional information, visit 
www.cushmanwakefield.com.hk or follow us on LinkedIn (
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This content was prepared by Media OutReach. The opinions expressed in this article are the author's own and do not reflect the view of Siam News Network.
