Knight Frank has released its latest Hong Kong Monthly Property Market Report. Due to weak economic conditions, demand for Grade A office leasing in the Hong Kong Island area stagnated in June. In contrast to Hong Kong Island, new leasing cases dominated the office market in June. As a result of economic uncertainty, activity in the Grade A office market in Kowloon has slowed significantly. Since the announcement of the withdrawal of the hot property market measures, buyer activity has significantly increased in March and April this year, but transaction volume and prices have fallen in May and June. The Hong Kong retail property market continues to decline and faces many challenges in the remaining days of this year given the limited market stimulation.

Due to weak economic conditions, demand for Grade A office leasing in the Hong Kong Island area stagnated in June, while office rents continued to decline. The overall vacancy rate of Grade A offices in Hong Kong Island is still high, which puts considerable pressure on landlords to attract tenants through rent reduction. On the bright side, new leasing cases dominated the leasing market in June, with most of the leasing transactions concentrated in Central, mainly from professional services and financial institutions. Looking ahead, the total floor area of Grade A offices due to be completed in 2025 is approximately 930,000 square feet, mainly located in Central and Causeway Bay. In addition, as more new office buildings are planned, new leasing demand in the Hong Kong Grade A office market will come from upgrading and relocation.

Unlike the situation in Hong Kong Island, new leasing cases dominated the office market in June in Kowloon, and office activities were significantly slowed down by economic uncertainty and seasonal factors in summer. The number of office transactions was dominated by lease renewals rather than new leasing cases. There was a lack of new office leasing cases in June. With the decrease in the utilization of new office buildings, rent has risen, and current landlords are more willing to offer rent concessions and subsidies during lease renewals to attract tenants, making it increasingly difficult to push forward the relocation decision in Kowloon. In addition to financial subsidies, some landlords are willing to provide capital expenditure subsidies, such as flexible leasing and renovation conditions, to attract tenants. This trend will continue and is expected to be the driving force behind the rental market in the coming months. Lease renewals and upgrades dominate the relocation cases in the Kowloon Grade A office leasing market, which means there is an opportunity to stabilize the market. Therefore, Knight Frank expects that the activity and rent of the Grade A office market in Kowloon will remain relatively stable in the second half of 2024.

Since the withdrawal of hot property market measures, buyer activity has significantly increased in March and April. However, affected by factors such as delayed interest rate cuts, market uncertainties, and a large number of unsold new properties, the number of residential transactions in May fell to about 5,550, and further declined by 30% to 3,856 in June. Residential property prices for March and April rose monthly due to the withdrawal, but fell 1.2% in May 2024, down 12.7% from the same period last year. Despite continuous price cuts by developers, buyers remain cautious in the persistently high interest rate environment. In the luxury property market, residential sales momentum remains strong and the transaction prices of some old luxury properties are significantly discounted from their peak values.

The influx of talent has also driven the development of the local rental market, pushing the rental index up to a four-and-a-half-year high, with a monthly increase of 1%. Knight Frank expects that the increase in non-local student numbers, the influx of professional talents and the return of foreign nationals will continue to drive the residential leasing market. Looking ahead, Knight Frank expects that residential property prices will not rebound unless mortgage interest rates fall to around 3%. Developers still need to sell another 8,000 to 10,000 units before prices can rise, which will take at least another 6 to 9 months to achieve.

The Hong Kong retail market continues to slump, with total retail sales falling 11.5% year-on-year to HKD 30.5 billion in May 2024. In the first half of 2024, the retail and dining leasing market showed mixed performance. On the one hand, some retail stores closed down. On the other hand, some mainland Chinese dining brands expanded rapidly in Hong Kong but found that their revenue was insufficient to support the high rent cost. On the positive side, mainland Chinese electric car brands are actively expanding into the Hong Kong retail market, especially focusing on exhibition venues in the areas of Wan Chai and Kowloon Bay. It is worth noting that some automobile operators are still renting short-term exhibition spaces in shopping malls to test the market atmosphere, rather than signing long-term leases. Electric car brands continue to seek opportunities to enter or expand in Hong Kong, which will support the retail leasing market and benefit from it. Looking ahead, retail sales in the second half of 2024 will need to grow by 8-10% compared to the same period in 2023 in order to match last year's total retail sales of HKD 407 billion. As the current measures to stimulate the market are limited, this brings many challenges to the market.