Page 1

1Q 2011 | THe knowledge

research & forecast report

hong kong real estate market c o l l i e r s i n t e r n at i o n a l

|

H ON G K ON G

Property Sector Overview Office Largely attributed to sustained expansionary demand among existing tenants and the prevailing limited supply trend in the marketplace, Grade A office rentals gained additional momentum, reaching an average of HK$65.2 per sq ft per month, which represents a growth of 12.8% quarteron-quarter (QoQ) as of 1Q 2011. Given the projection that the next supply cycle will not kick in before 2014, and the buoyant demand fundamentals attributed to the finance industries, the average rental rate in the overall market is predicted to grow 25% in 2011. Rentals in Central are therefore very likely to hit a post-2008 record high in the second half of 2011. market indicators

Luxury residential Office luxury residential industrial retail

The demand-supply imbalance and inflationary pressure continue to drive rents upwards. The average luxury rent increased 3.62% QoQ in 1Q 2011 to HK$45.42 per sq ft per month, only 0.7% below the previous peak in mid-2008. In spite of the market consolidation in terms of sales volume over the short to medium run, the sustained low interest rate environment, rising inflation and tight luxury residential supply will drive the price growth for luxury residential further. Luxury residential property prices are forecast to grow 6% in the next 12 months.

industrial Due to the decrease in availability of stock for lease in the marketplace and sustained growth in demand from tenants, the average rental in the factory sector increased 6.2% QoQ to HK$7.76 per sq ft per month, compared with the growth of 3.9% QoQ recorded in the preceding three-month period. In anticipation of further economic growth in the Mainland and other Asian economies, rentals of factories and I-O buildings are forecast to increase 15% over the next 12 months. Warehousing rentals are expected to have a further upside of 12% during the same period.

retail Thanks to buoyant inbound tourism and sustained positive market sentiment, the average retail rental in the traditional shopping districts increased 8.1% QoQ in 1Q 2011. Prime street segments such as Canton Road, Russell Street and Queen’s Road Central all achieved double-digit growth during the period. Given the sustained economic growth, increases in the number of inbound visitors, rising inflation, continual growth in retail sales and limited supply of shops in prime areas, overall retail rent in core shopping areas is predicted to grow further by 20% in the next 12 months.

www.colliers.com/hongkong


hong kong | 1q 2011 | REAL ESTATE MARKET

Economic Update Overview The relatively strong growth sustained by the Mainland and Asian economies will continue to benefit Hong Kong. But the relatively fragile economic recovery of the U.S. and Europe continued to be the key underlying uncertainties in the external environment. Driven by the flow of capital and the sustained low cost of borrowings, the volume of real estate investments remained strong in 1Q 2011. Meanwhile, thanks to the growing inflationary expectation, private consumption expenditure attributed to both local and inbound visitors showed distinct signs of acceleration in 1Q 2011.

GDP The latest GDP in 4Q 2010 suggested that the local economy remained strong at 6.2% year-on-year (YoY) – a buoyant level significantly above its long-term historical average of 4.3% YoY. Although the growth of exports of goods tapered off significantly from 20.8% YoY in 3Q 2010 to 8.4% YoY in 4Q 2010, the volume of private consumption expenditure accelerated from 4.9% YoY in 3Q 2010 to 7.1% YoY in 4Q 2010 due to impact of growing inflation and sustained contributions from inbound visitors. In anticipation of the strong growth in the Mainland and Asian economies, the Hong Kong Government forecasts GDP to grow from 4% to 5% YoY in 2011, while Hang Seng Bank predicts Hong Kong GDP to grow 4.5% in 2011.

Inflation The pace of inflation as demonstrated by the change of consumer prices picked up to 3.7% YoY in February 2011 as compared to 2.6% in October 2010, due to the continued rise in the Mainland’s food prices and local housing rentals. The Economist Intelligence Unit predicts an average inflationary rate of 3.6% in 2011. However, the estimated rate will remain below the 30-year historical average, running at 4.6%.

Interest Rates As the typical benchmark for mortgage financing, the 3-month HIBOR moved in a narrow range of 0.23-0.26% during 1Q 2011. However, more local banks started raising their HIBOR-based residential mortgage interest rates from HIBOR plus 70 basis points (bps) to the range of HIBOR plus 90 to 130 bps. The change demonstrates the more cautious stance adopted by local banks towards the increasing market volatility and their competitive HIBOR-based mortgage financing business.

Unemployment Rate Due to the continued expansion of the local economy, the average unemployment rate fell further from 4.2% in October 2010 to 3.8% in January 2011, which was actually on a par with the 30year historical average. HONG KONG REAL GDP GROWTH  Forecast

 

 









































 



% Growth Year-on-Year

 

      

 � � �

Source: Census & Statistics Department, HKSAR Government; The EIU (2011-2015)

p. 2

| Colliers International


hong kong | 1Q 2011 | office

Hiring expectations According to the survey undertaken by Hudson, hiring expectations in Hong Kong remained positive, and the percentage of respondents looking to increases hiring increased by one per cent to a record high of 66% as of 1Q 2011. Expectations were recorded at 100% among legal firms and the demand was particularly strong for people with good experience in the banking and finance market.

Banking and Financial Services The majority, representing 75%, of the respondents in the banking and financial services sector were looking to grow their headcount. Demand was particularly strong for corporate finance professionals with good experience in the Mainland China market.

Jobs in the “FIRE� sector The strong office leasing demand can also be demonstrated by the positive job growth in the employment market. Using the “FIRE� sector as an example, the number of jobs available in the market has been growing at a double-digit rate on an annualised basis since 1Q 2010. The latest figures issued by the Hong Kong Government in 4Q 2010 indicate that the job growth in the FIRE sector was 53% YoY, which was highly correlated with the office rental growth in Central currently running at 55% YoY.

      Â Â? Â?Â?   



 

    

 

 Â

 Â?

 

 

 

 

 

 

 Â?

 Â

 

 

 Â?

 

 

 

 

 

 Â?



 

  Â



Grade A Office Sector

Employment Trends

    

Note: FIRE = Financing, Insurance and Real Estate





Source: Census & Statistics Department, HKSAR Government; Colliers

Colliers International |

p. 3


hong kong | 1Q 2011 | office

Tenant Demand Positive Net Absorption The overall tenancy demand for Grade A office space remained strong in 1Q 2011, as demonstrated by the net positive take-up during the period. However, with a general lack of new supply of Grade A stock, the net absorption tapered off to about 103,000 sq ft on net floor basis in 1Q 2011, compared to 600,000 sq ft in the same period of 2010.

Take-up by sub-market Among the key business districts, Island East registered a nearly 100% increase of net takeup to about 120,000 sq ft net floor area during 1Q 2011, thanks to the demand for quality office developments in Taikoo Place. In Tsim Sha Tsui, the overall tenant demand improved, primarily attributed to the sustained demand from a batch of medium-sized companies.

Occupiers engaged in the banking and finance industries were the key pillars for the market demand in 1Q 2011. They included mediumsized hedge funds, existing players in the investment banking sector and the newcomers from overseas banks

Sources of Demand In Central, occupiers engaged in the banking and finance industries were the key pillars for the market demand in 1Q 2011. They included medium-sized hedge funds, existing players in the investment banking sector and the newcomers from overseas banks. In January 2011, Investec, an asset management company, committed to leasing a 6,400-sq ft unit on 36/F at Two International Finance Centre (Two ifc) for an average rental of HK$160 per sq ft per month. In addition, the most recent deal was the lease commitment by BBVA, a multinational Spanish banking group, to take a total of 12,000 sq ft at Two

International Finance Centre at an average rent of HK$155 per sq ft per month in February 2011.

The Issue of Affordability With the continued surge of rentals, more professional companies, with floor area requirements ranging from 5,000 to 10,000 sq ft, were increasingly reluctant to pay the asking rentals currently fetching above HK$100 per sq ft per month in Central.

Trend of Decentralisation Further to the strong rental growth in the order of 50% recorded in Central during 2010, a number of medium-sized tenants have been migrating to the adjacent business districts such as Wanchai and Causeway Bay, where rentals remain relatively low. However, the pace of office decentralisation from the business districts on Hong Kong Island to Kowloon East slowed in 1Q 2011, since the rental difference between the two locations narrowed significantly. For example, the current rental difference between Island East and Kowloon East was HK$10 per sq ft in 1Q 2011. The case of relocation is not justified in financial terms, since the difference is not sufficient to cover relocation costs in the order of HK$15 per sq ft.

Sales Options However, since the available stock for lease in fringe areas are limited, individual occupiers have been open to other property alternatives for sale, given the sustained low cost of financing.

GRADE A OFFICE NET TAKE-UP   

Net Floor Area (sq ft)

   







































  

Source: Colliers

p. 4

| Colliers International


hong kong | 1Q 2011 | office

Supply Conditions New Supply

Secondary Market

Having been completed in 3Q 2010, a portion of Kerry Centre, North Point, available for lease, has been carried forward into 2011. On the Kowloon side, 18 Kowloon East, the development located at 18 Wang Chiu Road, Kowloon Bay, was the only brand new office development completed in 1Q 2011. Developed by Sino Land, the development is a 26-storey Grade A office building, comprising a total floor area of 350,000 sq ft. The average size of floor plate is about 23,000 sq ft.

In addition, the number of leasing alternatives available in the secondary market is also very limited. As of 1Q 2011, whole-floor options in Central were less than 10 buildings. The current tight supply situation was generally the same in non-core business districts such as Island East.

Pre-leasing of Hysan Place In 1Q 2011, Hysan Development has started the pre-leasing of the office portion of Hysan Place, an office/retail mixed development in Causeway Bay, for pre-lease. The office portion, comprising a total of 15 floors or a total floor area of 240,000 sq ft, is scheduled for completion in 2Q 2012. Asking rentals currently fetch HK$70 per sq ft per month.

Beside 18 Kowloon East, there will be another two developments, 414 Kwun Tong Road and 133 Hoi Bun Road, scheduled for completion in 2011. Altogether, the total new supply in 2011, estimated at about 930,000 sq ft, will remain significantly less that its historical long-term average of 2.2 million sq ft per annum.

According to our research, the next supply cycle is anticipated to be driven by the redevelopment of existing aged buildings. In Central, the major scheme will be Hutchison House, which was completed in 1974. Meanwhile, some of the existing buildings in Taikoo Place, Island East, including Warwick House, Somerset House and Cornwall House, are planned for redevelopment by the Swire Group. However, the physical completion is anticipated to happen after 2014.

 �����          

  

























































 

Source: Hysan

   

Hysan Place

The Next Supply Cycle

The supply condition in the Grade A sector is expected to remain tight in 2012 and 2013. The total new supply will only represent 20% of the historical completion rate. In 2012 two new developments, the Hotel Ritz-Carlton redevelopment and Hysan Place, will be coming on line but the total new supply will continue to fall short of the historical average absorption rate of about 2 million sq ft per annum.

Source: Rating and Valuation Department (1985-2009); Colliers (2010-2013)

Colliers International |

p. 5


hong kong | 1Q 2011 | office

Grade A Office Supply (2011 – 2014 and Beyond) District

nfa (sq ft)

developer

status

Kowloon Bay

307,847

Sino Land

Completed

414 Kwun Tong Road

Kwun Tong

203,570

Chiefast Investment Ltd

Under construction

133 Hoi Bun Road

Kwun Tong

422,821

Billion Development

Under construction

191,250

Lai Sun; China Construction Bank

Under construction

237,344

Hysan Development

Under construction

Sun Hung Kai Properties

Under construction

building 2011

18 Kowloon East

Total

934,238

2012

Hotel Ritz-Carlton redevelopment Hysan Place

Central Causeway Bay

Total

428,594

2013

KCC (Phase 2)

Kwai Chung

Total

442,000 442,000

2014 & beyond

10 Harcourt Road

Central

419,468

Hutchison

Under planning (Existing Hutchison House)

979 King's Road, Taikoo Place

Taikoo Place

1,712,743

Swire Properties

Under planning (Warwick House, Somerset House and Cornwall House)

52 - 56 Tsun Yip Street

Kwun Tong

305,989

Billion Development

Under planning (Existing On King Centre)

181 Hoi Bun Road Total

Kwun Tong

262,650

Sun Hung Kai Properties/Wong's

Note: Demolition: Demolition work is actively undergoing Under construction: Construction activity, including either foundation or superstructure, are undergoing on site Under planning (Existing Building): Building plan for a site, currently occupied by a tenanted building, is approved by the Government Under planning (Vacant Building): Building plan for a site, currently occupied by an empty building, is approved by the Government Under planning (Bare Site): Building plan for a bare site is approved by the Government Completed: Construction is completed and an occupation permit is issued by the Government

p. 6

Under Planning (Bare Site)

2,700,850

| Colliers International

Source: Colliers


hong kong | 1Q 2011 | office

Vacancy grade a office vacancy rates (by sub-markets) district

total stock (million sq ft)

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

21.3

4.6%

4.0%

3.3%

3.0%

3.0%

Central / Admiralty Wanchai / Causeway Bay

11.1

5.5%

4.4%

3.8%

3.5%

3.3%

Island East

10.9

4.8%

3.3%

3.2%

5.8%

4.7%

1.6

5.6%

5.8%

3.5%

5.3%

3.8%

Sheung Wan Tsim Sha Tsui

6.4

6.8%

6.8%

6.1%

4.8%

6.6%

Kowloon East

7.9

11.9%

9.2%

7.3%

5.5%

7.2%

59.0

6.0%

5.0%

4.2%

4.2%

4.3%

Overall Note: Floor area on net basis

Performing Sub-markets

The average vacancy of the Grade A office market in Hong Kong was up 10 basis points to 4.3% in 1Q 2011. With the current supply gap, the average vacancy rate continued to stay below its long-term historical average of 5.1%.

The sub-markets experiencing the steepest fall in vacancy were Island East and Sheung Wan. In Island East, the remaining space of One Island East was absorbed during 1Q 2011 while the stock in Taikoo Place was particularly sought after.

Central/Admiralty Vacancy

Forecast Vacancy

Due to the lack of new supply and the continued demand from the financial sector, space vacated by outgoing tenants was quickly committed in the open market. The average vacancy rate in Central/Admiralty was virtually unchanged, at 3.0%, in 1Q 2011, compared to level in the preceding quarter. If the current demand trend is sustained, the average vacancy in the sub-market will edge further down to test its pre-crisis low, of 0.92%, by late 2011.

The new space coming on line in Kowloon East will be viable property alternatives for companies going for decentralisation. As such, the net take-up is going to increase in the second half of 2011. Given an increase in net absorption in Island East, the average vacancy of the whole market is expected to edge further down from 4.3% in 1Q to about 3.8% in late 2011.

    9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%

Jan-11

Nov-10

Jul-10

Sep-10

May-10

Jan-10

Mar-10

Nov-09

Jul-09

Sep-09

May-09

Jan-09

Mar-09

Nov-08

Jul-08

Sep-08

May-08

Jan-08

Mar-08

Nov-07

Jul-07

Sep-07

May-07

Jan-07

Mar-07

Nov-06

Jul-06

Sep-06

Mar-06

0.0% May-06

Source: Swire Properties

Overall Trend



One Island East

Source: Colliers

Source: Colliers

Colliers International |

p. 7


hong kong | 1Q 2011 | office

Rentals grade a office rentals (by sub-markets) 1Q 10

district

2Q 10 3Q 10 4Q 10 (HK$ / sq ft / month)

1Q 11

1Q 2011 (% QoQ)

Central / Admiralty

$71.3

$79.9

$89.6

$97.9

$110.2

12.6%

Wanchai / Causeway Bay

$36.6

$39.7

$42.8

$47.2

$55.2

16.8%

Island East

$27.0

$28.4

$29.8

$32.6

$38.0

16.7%

Sheung Wan

$38.7

$41.5

$45.8

$48.6

$50.4

3.8%

Tsim Sha Tsui

$32.2

$33.0

$34.7

$36.3

$39.8

9.4%

Kowloon East

$19.2

$20.8

$22.9

$24.5

$27.0

10.2%

Overall

$44.7

$48.5

$53.3

$57.9

$65.2

12.8% Source: Colliers

Growth Momentum Largely attributed to the sustained expansionary demand among existing tenants and the prevailing trend of limited supply in the marketplace, Grade A office rentals picked up additional momentum, to reach an average of HK65.2 per sq ft per month, representing a quarterly growth of 12.8% quarter-on-quarter (QoQ) as of 1Q 2011.

Landlords’ Market Given the prevailing demand and supply conditions, vendors were generally prompted to raise their asking rentals. As of 1Q 2011, the percentage of buildings with raised asking rentals represented 41% of the total, compared with 52% in 4Q 2010.

Sub-market Analysis One of the salient trends in 1Q 2011 was the exceptional rental growth registered in Wanchai/ Causeway Bay and Island East. The two sub-

markets outperformed the overall market with a rental growth of about 17% QoQ during the period, thanks to the migration of small- to medium-sized tenants from the core locations to fringe areas. Meanwhile, the rental growth in Central, of 12.6% QoQ, was slightly below the overall average, since individual companies in Central, including some professional firms, expressed that rentals had surpassed their affordable levels.

Island East Since the start of the market recovery in mid2009, office rentals have rebounded 59% as of 1Q 2011, but the overall average was still 6% below its previous peak in mid-2008. Due to the positive demand spillover from the traditional business districts on Hong Kong Island to non-core areas, Island East was the beneficiary. Capitalising on the well-established office cluster at Taikoo Place and buoyant occupancy rates, it was the first sub-market breaching its previous high, seen in 2008. As of 1Q 2011, the average rental in Island East was HK$38 per sq ft per month.

���� ­€­�

Rental Forecast

    Â Â

 





     





 







 







 







 







Source: Colliers

p. 8

| Colliers International

In anticipation of the sustained positive demand fundamentals but in the prolonged tight supply situation, office rentals are expected to edge up further over the near to medium term. Boosted by the performance of Central, average rental rate in the overall market is predicted to grow 25% in 2011. In such case, rentals in Central are certainly to hit a record high in the second half of 2011.


hong kong | 1Q 2011 | office

Investment Market Causeway Bay was sold for HK$580 million, or an average unit price of about HK$12,000 per sq ft, in January 2011. Meanwhile, prices of strata-title Grade B office floors in Wanchai were fetching about HK$6,000 – 6,500 per sq ft. For instance, a couple of office floors at Greatmany Centre, Wanchai were transacted at an average price of HK$6,277 per sq ft in 1Q 2011.

Funds Flow The office investment market in terms of the total volume of sales transactions remained active in 1Q 2011, thanks to the continued catch-up of office rentals and a general shift of investment funds from the local residential market to the commercial and office sector, particularly after the Government’s announcement of the introduction of a Special Stamp Duty on the residential market in November 2010. According to our research, the total value of investment sales transactions (i.e. lump sum transactions of HK$30 million or above) in 1Q 2011 was HK$5.3 billion – the level generally on a par with the long-term historical average.

Office yields The increased popularity of Grade B office assets can be illustrated by the yield compression in the Grade B market, while the Grade A yields were virtually flat during 1Q 2011. Meanwhile, the yield gap between Grade A and Grade B offices actually narrowed by about 20 basis point during 1Q 2011. Based on the latest sales transactions in some of the popular Grade A office developments in Central, such as 9 Queen’s Road and Bank of America Tower, the initial yields were in the order of 2.3-2.8% during 1Q 2011. Grade B assets in Wanchai - for example, Greatmany Centre - were transacted at premium yields of about 4.0%. Purchasers, including both local investors and end-users, were keen to acquire these assets for medium- to long-term growth.

Assets in Demand Investors continue to favour prime quality assets in Central and Admiralty, where rentals and capital values are anticipated to have better room for growth, due to the buoyant financial industries. However, stock listed for sale contracted in 1Q 2011. In addition, the volume of sales transactions in Central/Admiralty slowed, since most prospective buyers had yet to match vendors’ asking prices. Notwithstanding the slow volume, transacted office prices in Central/Admiralty rose about 18% during 1Q 2011.

Market Forecast Buying interests for better yielding assets in the Grade B office market are expected to continue amid the continued migration of small-to mediumsize tenants from the core business locations to the fringe locations. Meanwhile, the lack of leasing options in the traditional areas will prompt more companies to look seriously into sales opportunities available in the decentralized markets, thus bringing the yield gap between Grade A and B sector closer over the coming months in 2011.

Positive Spillover to the Grade B Sector Against a backdrop of limited stock for sales, investors turned to the second-tier office developments in business locations such as Wanchai and Causeway Bay, where capital values were generally lower than similar assets in Central. For example, the whole-block office/ commercial development at 9-11 Leighton Road,

HONG KONG OFFICE INVESTMENT YIELDS

HONG KONG OFFICE INVESTMENT SALES TRANSACTIONS 

 



Total Turnover (HK$ billion)

      

     

Source: Rating and Valuation Department, HKSAR Government; Colliers

Note: Investment sales transactions with lump sums of HK$30 million or above

























































  

 

































 



























 

Yield (% per annum)



Source: EPRC

Colliers International |

p. 9


hong kong | 1Q 2011 | office

Market Outlook The local Grade A office market is anticipated to post further growth in 2011 in anticipation of a sustained imbalance between supply and demand in the marketplace. Given the projection that the next supply cycle will not kick in before 2014, and the buoyant demand fundamentals attributed to the finance industries, average rental rate in the overall market is predicted to grow 25% in 2011. Rentals in Central are therefore very likely to hit a post-2008 record high in the second half of 2011. From an occupational perspective, the lack of leasing options has been the key challenge to most tenants, as well as rising rental costs. As a coping strategy, decentralisation and downgrading from prime to second-tier buildings will continue to be adopted by tenants. However, with vacant space in non-core business locations being gradually absorbed, individual companies have no choice but to turn to the office stock coming up for sale. In 1Q 2011, both end-users and investors were becoming more active in acquiring second-tier office space in the Grade B market. Given the better rental yields available in the Grade B office market and the increasing volume of liquidity, it is our prediction that the existing yield gap between Grade A and B market will narrow in the second half of 2011.

Â?Â?Â?

�  ­€­ � Source: Colliers



    

Grade B office building - Morrison Plaza

 



Â

     













































Source: Colliers

p. 10

| Colliers International


hong kong | 1Q 2011 | residential

Sales Market Slowdown in sales activity The significant retreat of short-term property traders in the market, along with dampened sentiment due to market’s concern about another round of Government's new measures to curb overheating, resulted in a further slowdown in sales activity of the Hong Kong residential market in 1Q 2011. In addition, market sentiment was further subdued by the rising mortgage rates in early March 2011. According to the Land Registry, the total number of sales and purchases of residential units decreased by 31% QoQ during the three-month period ended February 2011 after a 9.8% drop in the previous quarter ended in November 2010. In line with the overall market, the total number of luxury residential sales transactions in traditional luxury districts of The Peak, Mid-levels and South Side also decreased by 31% QoQ during the three-month period ended February 2011. In terms of financing, major local banks remained conservative in lending and raised their mortgage rates based on Hong Kong interbank offered rates (HIBOR) in March. HSBC, Bank of China (Hong Kong), DBS Bank, Bank of East Asia, Citibank, Wing Hang Bank, Wing Lung Bank announced their increased HIBOR-based mortgage interest rates to the range of HIBOR plus 0.9% - 1.3%, with three-month HIBOR at about 0.33%. Previously, they offered at HIBOR plus 0.8% to 1.0%. Despite the rate increment, the HIBOR-based mortgage interest rates are still substantially cheaper than those prime rate-based rates, the lowest of which was at 2.15%. HIBOR-based mortgages account for 92% of the overall mortgage market.

Record-breaking luxury Residential prices  

































































 

Luxury Residential Sector

Source: Colliers

Colliers International |

p. 11


hong kong | 1Q 2011 | residential Given the relatively low interest rate environment and limited luxury residential supply, the overall luxury residential prices edged up further by 3.4% QoQ to HK$18,806 per sq ft as of February 2011, surpassing the previous peak in mid-2008 by 25%. Demand for houses remained particularly sought after during 1Q 2011. In March 2011, House No. 1 at 6 Stanley Beach Road transacted at HK$328.8 million, achieving the highest unit price of HK$62,976 per sq ft on record, breaking the previous transaction of House B at 37 Island Road, which was sold for HK$HK$62,883 per sq ft (HK$440.18 million) in January 2011.

    �    



       









































































Source: Colliers

p. 12

| Colliers International


hong kong | 1Q 2011 | residential

major residential sales transactions Month

Property

GFA (sq ft)

Price (HK$ m)

Unit Price (HK$ / sq ft)

The peak

Dec-10

47 Barker Road

Dec-10

20 Peak Road

7,766

$203.80

$26,243

12,882

$750.00

Jan-11

$58,221

La Hacienda, Lower Townhouse 5

2,800

$135.00

$48,214

Jan-11

La Hacienda, Lower Townhouse 9

2,800

$128.00

$45,714

Jan-11

Nicholson Tower, Block B, 12/F, Unit 2

1,993

$35.50

$17,812

Feb-11

Montebello, Suite 7

3,085

$138.00

$44,733

Dec-10

Belgravia, 21/F, Flat A

2,390

$66.00

$27,615

Dec-10

Belgravia, 21/F, Flat B

2,790

$76.00

$27,240

Dec-10

Belleview Garden, House 2

4,018

$163.00

$40,567

Dec-10

37 Island Road, House C

7,000

$435.00

$62,143

Dec-10

45 Island Road, House 6

2,705

$75.00

$27,726

Dec-10

Regalia Bay, House B37

4,073

$63.00

$15,468

Dec-10

27 - 29 Consort Rise, House 2

3,800

$54.50

$14,342

Dec-10

Twin Brook, 12/F, Flat A

2,700

$52.00

$19,259

Dec-10

South Bay Palace, Tower 2, 8-9/F, Flat B

3,401

$66.80

$19,641

Jan-11

Hong Kong Parkview, Tower 9, 16-17/F, Unit 57

5,240

$88.00

$16,794

Jan-11

Ruby Court, Tower 1, 5/F, Flat B

2,200

$41.30

$18,773

Jan-11

Grosvenor Place, 25/F

2,809

$81.00

$28,836

Jan-11

Shouson Peak, House 15

6,140

$282.80

$46,059

Jan-11

37 Island Road, House B

7,000

$440.18

$62,883

Jan-11

Stanley Court, House 19

2,713

$51.00

$18,798

Jan-11

9 Tai Tam Road

12,236

$316.00

$25,825

Jan-11

20-22 South Bay Road

20,723

$880.00

$42,465

Jan-11

Majestic Court

8,180

$316.00

$38,631

Feb-11

Grand Garden, Block 1, 23/F, Flat A

3,054

$67.88

$22,227

Feb-11

Bluewater, 2/F, Flat A

2,450

$50.00

$20,408

Feb-11

Regalia Bay, House A09

4,212

$71.00

$16,857

Feb-11

3 Repulse Bay Road, 10/F, Flat A

2,161

$59.00

$27,302

Feb-11

3 Repulse Bay Road, 23/F, Flat B

2,021

$63.00

$31,173

Feb-11

56 Repulse Bay Road, House 21

3,281

$110.00

$33,526

Feb-11

The Somerset, 7/F, Flat A

2,464

$63.80

$25,893

Feb-11

Redhill Peninsula, Palm Drive, House 53A

2,901

$62.18

$21,434

Dec-10

Century Tower, Tower 2, 16/F

3,663

$83.00

$22,659

Dec-10

Kennedy Heights, 30/F, Flat A

3,400

$82.00

$24,118

Dec-10

Fairlane Tower, 25/F, Flat A & B

2,818

$50.50

$17,921

Dec-10

Azura, 38/F, Flat B

2,078

$52.53

$25,278

Dec-10

Serenade, Tower 1, 59-60/F, Flat C

2,605

$80.00

$30,710

Dec-10

Mayfair, 22/F, Flat B

2,838

$78.00

$27,484

Jan-11

Tregunter, Tower 3, 47/F, Flat D

3,034

$64.08

$21,121

Jan-11

Dynasty Court, Tower 1, 2/F, Flat A

2,691

$59.00

$21,925

Jan-11

Tregunter, Tower 3, 51-52/F, Flat A

3,648

$54.50

$14,940

Jan-11

Serenade, Tower 1, 61-62/F, Flat C

2,605

$80.76

$31,000

Jan-11

Serenade, Tower 1, 38-39/F, Flat C

2,609

$70.44

$27,000

Feb-11

Estoril Court, Tower 3, 14/F, Flat F

3,347

$52.80

$15,775

Feb-11

Grenville House, 10/F, Flat C

3,700

$80.00

$21,622

Feb-11

Clovelly Court, Block 1, 16/F, Flat C

2,276

$45.20

$19,859

Feb-11

Borrett Mansion, 10/F, Flat 9B

2,800

$46.80

$16,714

Feb-11

Estoril Court, Tower 1, 14/F, Flat A

3,347

$56.80

$16,970

South Side

mid-levels

Source: Colliers

Colliers International |

p. 13


hong kong | 1Q 2011 | residential

Leasing Demand Sustainable rising demand Occupational demand stayed strong in 1Q 2011. Newcomers from banking and finance sectors remained the key contributors to total expatriate arrivals. Meanwhile, non-finance companies, such as consulates, continued to be cost-conscious. Looking at the breakdown of expatriate arrivals, entry level arrivals contributed to the largest share of the pie, accounting for 70%; middle management level represented 25%, with the remaining 5% belongs to senior management level.

Traditional luxury residential districts

Source: Colliers

Housing budgets saw an overall increase of about 5%-10% YoY in 1Q 2011. Budgets for staff at junior levels ranged from HK$20,000 to HK$60,000 per month; middle management budget levels ranged from HK$60,000 to HK$150,000 per month; and senior executives ranged from HK$150,000 and above per month as of 1Q 2011.

Mismatch in Budgets and asking rents Yet a divergence between corporate housing budgets and landlord’s asking rents was observed during 1Q 2011. There was a mismatch between a 5%-10% YoY increase in housing allowances and asking rentals of some units, which were asked for 15% YoY increase or above, given 15% was the overall luxury residential rental growth in 2010. In some cases, tenants who were unable to justify the widening gap between budgets and asking rents turned to downgrading flat sizes or moving away from traditional luxury residential districts to other areas, such as Kennedy Town or Pokfulam. There were also cases of tenants working in International Commerce Centre (ICC) in West Kowloon, who had been considering renting in other areas such as Tung Chung.

major residential LEASE transactions

District

GFA (sq ft)

Rental (HK$ / month)

Unit rental (HK$ / sq ft / month)

Lynx Hill (Lease Renewal)

South Side

8,407

$470,000

$55.91

Jan-11

Harston, The Repulse Bay

South Side

2,500

$111,000

$44.40

Feb-11

Nicholson, The Repulse Bay

South Side

2,823

$120,000

$42.51

Feb-11

Branksome Grande

Mid-Levels

3,030

$103,000

$33.99

Feb-11

Bamboo Grove

Mid-Levels

2,600

$111,000

$42.69

Month

Property

Jan-11

Source: Colliers

p. 14

| Colliers International


hong kong | 1Q 2011 | residential

Rental Trend Luxury Residential Rentals (By Sub-Markets) 1Q 10

district

2Q 10 3Q 10 4Q 10 (HK$ / sq ft / month)

1Q 11

1Q 2011 (% QoQ)

The Peak

$50.13

$52.15

$54.31

$56.96

$60.88

6.9%

Mid-levels

$37.54

$39.97

$41.90

$43.20

$44.97

4.1%

South Side

$40.81

$42.29

$44.18

$45.32

$46.55

2.7%

Overall

$39.08

$40.93

$42.60

$43.83

$45.42

3.6% Source: Colliers

In view of the sustained economic recovery, positive market sentiment, reducing availability of quality stock, growing demand for accommodation from both local moves and new expatriate arrivals, landlords continued to remain firm in rental negotiations. In fact, some corporate landlords were aggressive in raising their asking rents in 1Q 2011. The demand-supply imbalance and inflationary pressure continued to drive rent upwards. The average luxury rent increased by 3.62% QoQ to HK$45.42 per sq ft per month as of February 2011, which was very close to the previous peak in Mid-2008, down by only 0.7%. Houses in prime locations of Hong Kong Island were particularly sought after, due to the inadequate availability of houses for lease. Activity for the quarter was highlighted by the lease renewal of a 8,407-sq ft house in Lynx Hill in South Side for HK$470,000 per month (HK$55.91 per sq ft per month), the leasing of a 3,250-sq ft house at Deep Water Bay Road in South Side for HK$176,000 per month (HK$54.15 per sq ft per month) and a 4,500-sq ft house in Jardine Terrace in Jardine’s Lookout for HK$180,000 per month (HK$40.00 per sq ft per month).

   ���  

      





































































 

 



Source: Colliers

Colliers International |

p. 15


hong kong | 1Q 2011 | residential

Serviced Apartment Market Banking and finance industries remained the key group In line with the traditional leasing market, leasing activities in the serviced apartment market remained upbeat in 1Q 2011. Confirmed arrivals were mainly junior executives from the banking and finance industry during the quarter. Serviced apartments continued to attract a batch of newly arrived expatriates for temporary stays before committing to a permanent residence or those contract-based for short-term accommodation.

Gateway Apartments, Tsim Sha Tsui

Source: Gateway Apartments

Notably, increasing number of expatriate arrivals in the entry level, largely from the banking and finance industries, prompted exceptionally strong demand for studio and one-bedroom units in 1Q 2011. Expatriates in the middle management and senior levels are expected to arrive in 2Q 2011, partly due to expatriate families anticipating the start of school year after the summer holidays. As such, more tenants engaged in shorter lease terms, of six months or less, in 1Q 2011.

Short leases account for 82% Our research statistics indicate that the number of short leases (i.e. with terms of six months or less) showed an increasing proportion, constituting 82% of the total during the three-month period ending February 2011, compared with the long-term average of 67%. Meanwhile, the number of long leases (i.e. with terms of six months or longer) concluded during the same period accounted for 18% of the pie, below the long-term average of 33%. In general, the sustained demand for serviced apartment units prompted the continuing increase in serviced apartment rents in both centralised and decentralised locations, with average rents rising further by 2.2% QoQ as of February 2011.

Stronger demand for studios/one-bedroom suites Looking at the breakdown, serviced apartments in low-tier group, with rentals ranging from HK$10,000 to HK$25,000 per month, in central business districts (CBDs) displayed the strongest growth, of 3.9% QoQ as of February 2011. This was due to the increasing number of junior executive arrivals from the banking and finance industry, which resulted in stronger demand for studios and one-bedroom units in 1Q 2011.

p. 16

| Colliers International


hong kong | 1Q 2011 | residential

Investment Market Overall, the luxury residential yield of the three traditional luxury residential districts stayed relatively steady, increasing marginally from 2.71% in November 2010 to 2.72% at the end of February 2011. During the three-month period ending February 2011, land sales were recorded in the luxury residential sector. A residential site at 20 Peak Road was sold to a local investor for HK$750 million. Based on a site area of 25,764 sq ft, a plot ratio of 0.5 times and a developable area of 12,882 sq ft, the accommodation value was HK$58,221 per sq ft, the highest accommodation value ever achieved. This transaction reflected investor’s optimism towards Hong Kong's luxury residential market.

      























































































Source: Colliers

Colliers International |

p. 17


hong kong | 1Q 2011 | residential

Supply New Government Initiatives- Land Supply In the 2011-12 budget announced on the 23rd February 2011, the government put forward a number of initiatives to increase land supply that clearly reflected an awareness of an overheating property sector. The government-initiated land sale and the Application List system will remain the principal mechanism for government land sales in 2011-12. However, no new residential sites in the 2011-12 Application List were added in the traditional luxury districts on Hong Kong Island besides the four luxury sites that were actually rolled over from last year. Such land auction systems are unsound, given their continued reliance on the purchasing power of developers, and that the government is unlikely to sell these sites cheaply. Roll-over Residential Sites (Government-Initiated Land Sale) Site area (sq ft)

Lot-Number

district

address

IL 8949

Mid-levels

21, 23 and 25 Borrett Road

112,892

Roll-over Residential Sites in Application List Site area (sq ft)

Lot-Number

district

address

RBL 1165

South Side

Near 110 Repulse Bay Road

45,747

RBL 1168

South Side

Near 35 South Bay Road

14,402

Source: Lands Department, HKSAR Government

Tight luxury residential supply In addition to land sales via public auction or tender, housing developments available from above rail-station projects will offer a total new supply of 30,000 to 40,000 flats upon completion in 20132014, exceeding the average historical completion rate of 25,000 flats per annum. The upcoming new supply in 2013-2014 will strike a demand-supply balance. There is a risk of oversupply if demand retreats below its long-term average, as the possibility of the local economy contracting is statistically high respective to historic economic cycles. However, there will be no significant impact on the luxury residential market, as the supply situation remains tight. The overall luxury residential new supply between 2011 and 2013 was 60% below its long-term average of 549 units.  Â? Â?Â?Â? ­Â?€Â? ‚‚Â?   



     



 

 



































































Source: Colliers

p. 18

| Colliers International


hong kong | 1Q 2011 | residential

  Â? Â?Â?Â?Â?   Â?Â?­   

 

     



   





































































Source: Colliers

  �� ���  ­ € 











    

 









































































Source: Colliers

 Â?Â? Â?Â?  ­­Â?€ Â? 







         





























































 





Source: Colliers

Colliers International |

p. 19


hong kong | 1Q 2011 | residential

projected new supply of luxury residential units in 2011 development

* House

* Apartment

developer / owner

No. of units

Status

the peak

-

1 @ 13-s

Swire Properties

12

Under Construction

54 Mount Kellett Road

53 Stubbs Road

3 @2-s

-

Manhattan Group

3

Under Construction

59 Mount Kellett Road

1 @ 2-s

-

Wincord Investment Ltd

1

Under Construction

3 Black's Link

2 @ 3-s

-

Fortune Link Development Ltd

2

Under Construction

37 Severn Road

3 @ 3-s,

-

SHKP

7

Under Construction

4 @ 3-s south side

43 Beach Road

-

2 @ 3-s

Silver Mark Ltd

6

Completed in Feb 2011

1 @ 3-s

-

Infinitive Ltd

1

Under Construction

2 Belleview Drive

1 @ 4-s

-

Emperor Group

1

Under Construction

18 Carmel Road

1 @ 4-s

-

Horizon East Investment Ltd

1

Under Construction

-

1 @ 48-s

Wing Tai Asia

82

Under Construction

4A South Bay Road

mid-levels

9A-H Seymour Road, 5, 6, 6A, 7 & 7A Ying Fai Terrace Note: * Number of blocks @ Number of storeys

p. 20

| Colliers International

Source: Colliers


hong kong | 1Q 2011 | residential

Market Outlook Notwithstanding the market consolidation in terms of sales volume over the short to medium run, the sustained low interest rate environment, rising inflation and tight luxury residential supply, luxury residential prices will grow further. Overall, luxury residential new supply between 2011 and 2013 was 60% below its long-term average of 549 units. Luxury residential property prices will have a prospective upside of 6% over the next 12 months. In the luxury residential leasing market, sustained rising occupational demand and increasing inflationary pressure will continue to drive rental upwards, with a double-digit growth of 13% over the next 12 months. Meanwhile, rental level will surpass the previous peak level of 2008 by 2Q 2011. In addition, more expatriate families are expected to arrive by 2Q 2011, leading to higher demand for houses and large-sized apartment units.

 Â  Â?Â?Â? Â 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

 

 

 

 

 

 

 

  

 



  

Source: Colliers

Colliers International |

p. 21


hong kong | 1Q 2011 | industrial

Industrial Sector

External Trade Performance The Hong Kong external trade growth remained robust in 1Q 2011. During the period from December 2010 to February 2011, the total value of re-exports increased 21.6% year-on-year (YoY) to HK$747 billion, compared with the growth rate of 18.2% YoY in the preceding three-month period. The growth of air cargo and container throughput continued to taper off during the period from December 2010 to February 2011. The container throughput volume increased 4.5% YoY to 5.6 million TEUs during the period, down from 9.8% YoY in the preceding three-month period. Meanwhile, air cargo throughput increased 5.7% YoY to 937,000 tonnes during the period from December 2010 to February 2011, compared with 11.9% YoY in the preceding three-month period.

       





























 

Source: Census and Statistics Department, HKSAR Government

       



 



























 

  

Source: Civil Aviation Department, HKSAR Government

       





























 









Source: Marine Department, HKSAR Government

p. 22

| Colliers International


hong kong | 1Q 2011 | industrial

Leasing Demand DEMAND FROM THIRD-PARTY LOGISTICS COMPANY EXPANDING The sustained growth in local consumption and re-exports volume continue to underpin the industrial property market performance in 1Q 2011. During the period from December 2010 to February 2011, retail sales increased 18.7% YoY to HK$101.7 billion while the total value of re-exports increased 21.6% YoY to HK$747 billion. Third-party logistics companies remained major beneficiaries from the growth of local consumption and re-exports volume. According to our research, some existing third-party logistics companies have been searching for quality warehousing premises in order to meet the growing demand for logistics services. These tenants are looking for ramp access warehouse premises in Kwai Chung, Tsuen Wan and Tsing Yi with sizes in the range of about 20,000 – 50,000 sq ft. Meanwhile, individual foreign logistics operators, including those from Europe and Mainland China, are seeking to establish their presence in Hong Kong. Generally, these newcomers are seeking warehouse premises with physical provision of ramp access, with sizes ranging from 50,000 sq ft to 100,000 sq ft and ceiling height of 15 feet or above. In terms of location, these occupiers prefer premises located in Kwai Chung, Tsuen Wan and Tsing Yi.

    





































































 





Source: Census and Statistics Department, HKSAR Government

Colliers International |

p. 23


hong kong | 1Q 2011 | industrial

Supply Individual whole-block building owners, who plan to convert or redevelop their buildings for other uses, have vacated their premises. This has led to a reduction in the availability of stock for lease.

Two new buildings completed Two new industrial buildings were completed in 1Q 2011. Solo at 83 Bedford Road in Tai Kok Tsui, developed by K.Wah, was completed in January 2011. The 23-storey industrial building provides a total gross floor of about 66,503 sq ft. Grandion Plaza at 932 Cheung Sha Wan Road in Cheung Sha Wan, developed by Billion Development, was completed in January 2011. The 27-storey building provides a total gross floor area of about 135,533 sq ft. The developers offered the whole of the two new developments for strata-title sale.

Interlink coming online in 2012 Looking forward, the major new supply coming online will be Interlink in Tsing Yi. Developed by Goodman, the Interlink project is the largest logistics warehousing facility undergoing construction in Hong Kong. On completion in early 2012, the development will provide about 2.4 million sq ft of warehouse premises. This new development has been well received by logistics operators. DHL Supply Chain, Yusen Air and Sea Services, and BEL Logistics have pre-committed over 50% of the development. The remaining space was either pre-optioned or under active enquiry.

location of new supply



 





  



 

 

 







   

 

Source: Colliers

p. 24

| Colliers International


hong kong | 1Q 2011 | industrial

Rental Trend Industrial Rentals (By sub-markets) submarket

1Q 10

2Q 10

3Q 10 (HK$ / sq ft / month)

4Q 10

1Q 11

1Q 2011 (% QoQ)

Factory

$6.63

$6.79

$7.03

$7.31

$7.76

6.2%

Cargo Lift Access Warehouse

$5.26

$5.41

$5.60

$5.83

$6.16

5.7%

$7.57

$7.75

$8.07

$8.32

$8.80

5.8%

$10.49

$10.76

$11.09

$11.39

$11.96

5.1% Source: Colliers

PACE OF RENTAL GROWTH ACCELERATED The overall industrial market continued to enjoy positive spillover from the traditional office sector due to the sustained increase in rentals in the office market. In view of the decrease in availability of stock for lease in the marketplace and sustained growth in demand from tenants, industrial rental growth accelerated in 1Q 2011. As at the end of February 2011, the average rental in the factory sector increased 6.2% quarter-onquarter (QoQ) to HK$7.76 per sq ft per month, compared with the growth of 3.9% QoQ recorded in the preceding three-month period. The average rental of ramp access warehouses increased 5.8% QoQ to HK$ 8.80 per sq ft per month, compared with 3.0% QoQ recorded during the period from August 2010 to November 2010. The average rental of cargo lift access warehouses increased 5.7% QoQ to HK$6.16 per sq ft per month, accelerated from the 4.0% growth recorded in the preceding three-month period. The average rental in the industrial-office (I-O) sector increased 5.1% QoQ to HK$11.96 per sq ft per month, compared with 2.7% growth recorded during the period from August 2010 to November 2010.  



  



































































































  

























    



   















































   

  



 �� 





















 

Ramp Access Warehouse I-O Building

  

Source: Colliers

Colliers International |

p. 25


hong kong | 1Q 2011 | industrial

Investment Market Activity Industrial prices (By sub-markets) submarket

1Q 10

2Q 10

3Q 10 (HK$ / sq ft / month)

4Q 10

1Q 11

1Q 2011 (% QoQ)

Factory

$1,545

$1,617

$1,673

$1,786

$1,960

9.7%

Cargo Lift Access Warehouse

$1,713

$1,781

$1,838

$1,963

$2,138

8.9%

Ramp Access Warehouse

$1,820

$1,893

$1,950

$2,050

$2,255

10.0%

I-O Building

$2,438

$2,524

$2,566

$2,767

$3,002

8.5% Source: Colliers

Price increased further The sustained low interest rate environment and the keen buying interest among a mass group of industrial occupiers continued to underpin the industrial price performance. As at the end of February, average price of factories increased 9.7% QoQ to HK$1,960 per sq ft. The average price of ramp access warehouses increased 10.0% QoQ to HK$2,255 per sq ft, while that for cargo lift access warehouses increased 8.9% QoQ to HK$2,138 per sq ft. Meanwhile, the average price of I-O buildings increased 8.5% QoQ to HK$3,002 per sq ft.

Sales Market Remains Active The industrial property sales market took a breather in 1Q 2011. The number of stratatitled transactions decreased 20.3% QoQ to 1,762 during the period from December 2010 to February 2011. Meanwhile, the total value of transactions decreased 24.3% QoQ to HK$6,129 million during the same period. Notwithstanding the mild contraction, both the number and total value of strata-titled sales transactions were above their long-term average levels, at 1,150 transactions per quarter and HK$2,577 million per quarter respectively.

On the whole-block sales front, the number of transactions increased from four in September – November 2010 to a total of eight during the period from December 2010 to February 2011. Some local investors are attracted by the potential growth in rentals and capital values from converting or redeveloping industrial premises for non-industrial uses. Meanwhile, individual end-users acquired whole-block properties for owner’s occupation purposes.

Owner’s Occupation According to our record, Aeon Stores (Hong Kong) acquired the whole-block of Wilson Logistics Centre in Kwai Chung for a total consideration HK$310 million from Goodman for owner’s occupation purpose. In addition, Bright Future Pharmaceutical Laboratories acquired the whole-block of industrial building at 38 Wang Lee Street, Yuen Long for a total consideration of HK$108 million from New Island Printing for end-user purpose. The current market yields of industrial premises stayed at a relatively low level in view of the keen buying interest among investors and end-users. As at 1Q 2011, the current market yields were in the range of 4.5% - 5.0% per annum.

whole block transactions Price (HK$ million)

Average price (HK$ / sq ft)

Purchaser

Vendor

Kwun Tong

$140.00

Undisclosed

The Hong Kong Management Ltd

Kevin Wong Holdings

Kwun Tong

$470.00

$2,404

Local investor

Multiple owners

Culturecom Centre

Kwun Tong

$286.00

$2,600

Undisclosed

Culturecom

Candy Novelty House

Kwun Tong

$176.00

$2,608

Local Investor

Undisclosed

38 Wang Lee Street

Yuen Long

$108.00

$667

Bright Future Pharmaceutical

New Island Printing

Brilliant Cold Storage Tower 1

Kwai Chung

$686.50

$1,807

Chevalier International

Goodman

Luen Tai Industrial Building

Kwai Chung

$223.00

$2,301

Sun Hung Kai Properties

Chuen Ming & Co Ltd

Wilson Logistics Centre

Kwai Chung

$310.00

$1,101

Aeon Stores (Hong Kong)

Goodman

bulding

district

Kevin Wong Development Building 133 Wai Yip Street

Laboratories

Source: Colliers

p. 26

| Colliers International




 









 



















 ���      

      















Colliers International | 





























































































  Â Â Â?



 

 







 





 

   

 













 

 



































  

























    

 

 

 

 

 

 



hong kong | 1Q 2011 | industrial

 Â Â? Â? Â?Â?Â



� � �    ­   

Source: Colliers



 

 

 

 



  

Source: Colliers

p. 27


hong kong | 1Q 2011 | industrial

Revitalising Industrial Buildings FOUR SPECIAL WAIVER CASES RECORDED The government’s measures to revitalise industrial buildings continued to attract some owners to look into the potential of their single-owned industrial buildings, which are eligible for wholesale conversion for other uses or redevelopment under the scheme. As of the end of February 2011, a total of 42 applications have been received by the Lands Department since the launch of the new measures, including 33 applications for conversion and nine for redevelopment. Of these applications, a total of four cases of special waiver for whole block conversion have been executed, which involved the conversion of four industrial buildings in Kwun Tong for commercial uses.

View of Kowloon East

Thanks to the continued development of infrastructure and the implementation of a number of town planning initiatives, old industrial districts have been gradually transformed into decentralised business hubs. In Kowloon East, the completion of Grade A office developments and relocation of some banks’ divisions and insurance companies to the district have boosted the pace of transformation of the district into a commercial area. The implementation of the Kai Tak Development project and the upcoming Kwun Tong Town Centre redevelopment project will further stimulate the transformation of the Kowloon East into a decentralised business hub. It is anticipated that the demand for office premises will increase amid the progress of the district’s transformation. In view of the potential rental growth from building usage conversion and the special waiver fee arrangement under the revitalising industrial building policy, it is anticipated that more whole-block industrial building owners will consider converting their premises for other uses.

EXECUTED SPECIAL WAIVER CASE Execution date

location

User

building size (sq ft)

20 Oct 10

11 Lai Yip Street

Office

96,126

22 Dec 10

94 & 96 How Ming Street

Shop and Services; Office

30 Dec 10

163 Hoi Bun Road

Commercial

31 Dec 10

137 Wai Yip Street

Office

Note: The special waiver cases have been registered in the Land Registry and case details may be obtained by searching the registered document directly from the Land Registry

p. 28

| Colliers International

107,000 About 150,000 66,512

Source: Lands Department, HKSAR Government; Colliers


hong kong | 1Q 2011 | industrial

Market Outlook According to the Hong Kong Trade Development Council (HKTDC), Japan is Hong Kong’s third largest trading partner. Bilateral trade reached US$56 billion in 2010, or 6.8% of Hong Kong’s total trade. The negative effects of Japan’s disaster on Hong Kong’s external trade are expected to become apparent over the next few months. Japan has long been the third largest export market of Hong Kong, with Hong Kong’s exports to Japan in 2010 totalling US$16.3 billion and representing a 4.2% share of total exports. In addition, Japan is Hong Kong’s second largest source of imports. In 2010, Hong Kong’s imports from Japan totalled US$39.5 billion, of which US$27.8 billion were re-exported.

According to HKTDC’s assessment of the effects from Japan’s earthquake on Hong Kong’s exports trade, about 1% of Hong Kong’s total exports for 2011 would be affected.

Moreover, Japan is a major supplier of electronics parts and components, accounting for about 20% of the global supply of semiconductors. Production disruptions in Japan will negatively affect Hong Kong’s re-export business over the next few months, given the uncertainty over electricity supply and interruptions to the supply chains, in particular parts and components. According to HKTDC’s assessment of the effects from Japan’s earthquake on Hong Kong’s exports trade, about 1% of Hong Kong’s total exports for 2011 would be affected.

The developments in these areas will continue to be beneficial to the Hong Kong economy, providing an offset to the negative effect of the incidents in Japan.

Nevertheless, Hong Kong’s recent strong economic performance has benefited mainly from robust growth in the Mainland and other Asian economies. The developments in these areas will continue to be beneficial to the Hong Kong economy, providing an offset to the negative effect of the incidents in Japan. Although the pace of growth of external trade will be dampened, sustained growth in external trade volume will underpin the demand for logistics services, which in turn will translate into demand for industrial premises and in particular logistics warehouse premises. It is anticipated that the rentals of factory and I-O buildings would increase 15% over the next 12 months. On the warehouse premises front, the rentals are expected to increase 12% during the same period. The government’s policy of revitalising industrial buildings continued to attract some investors to seek for investment opportunities in en bloc industrial buildings. In addition, the substantial price gap between decentralised office premises and industrial properties located in the same district have stimulated the investors’ buying interest in industrial premises. For example, individual office units in Metroplaza Tower 2 in Kwai Chung changed hands at an average price of about HK$5,900 – HK$6,614 per sq ft in 1Q 2011, while the highest average transacted price of industrial units in the district was about HK$2,600 per sq ft. In Kowloon Bay, the office units in Chevalier Commercial Centre and Telford House were sold for average prices of about HK$4,200-5,800 per sq ft in 1Q 2011, while the industrial units in Metro Centre were sold for about HK$2,600-4,057 per sq ft during the quarter. Moreover, in view of sustained rental growth, individual end-users seek to acquire high quality industrial premises for owner-occupation purpose. In view of sustained buying demand from investors and end-users, industrial prices are expected to increase 15%-18% over the next 12 months.

Colliers International |

p. 29


hong kong | 1Q 2011 | retail

Retail Sector

Leasing Demand Vibrant inbound tourism The inbound tourism market was buoyant in 1Q 2011, with the total number of visitor arrivals achieving the highest level, up by 13.2% year-on-year (YoY) to 10.06 million during the three-month period ending February 2011. Mainland visitors remained the largest group by country of origin, with arrivals from Mainland China reaching 6.79 million. As of February 2011, inbound visitors from the Mainland constituted 69% of total arrivals, to a total of 2.0 million.































 

































 

 









 

Arrivals from China (% of Total)





Number of Arrivals (Million)

VISITOR ARRIVALS

    

 Â

Source: Hong Kong Tourism Board

Big-ticket items saw promising growth Looking at the breakdown of retail sales, big-ticket items, with sales of jewellery, watches and clocks, and valuable gifts experienced a promising growth of 35.0% YoY, to an all-time high level of HK$21.7 billion during the three-month period ending February 2011. Sales of other items, such as clothing and footwear (+20.4% YoY), motor vehicles and parts (+15.6% YoY), electrical goods and photographic equipment (+16.1% YoY), medicines and cosmetics (+15.5% YoY), performed well.

 ��  �� ­€‚ƒ „…‚† ‡ˆ‰   

   

         



     



































































Source: Census & Statistics Department, HKSAR Government

p. 30

| Colliers International


hong kong | 1Q 2011 | retail According to Nielsen’s latest survey conducted in 4Q 2010, over 68% of Mainland tourists planned their purchases before coming to Hong Kong, with 65% of females, and 37% of those aged 34 and younger, as the most well-planned in terms of purchases. Not surprisingly, cosmetics and skincare products (61%) was the key planned purchase category, followed by electronics/photographic products (52%), clothing (45%) and jewellery/watches (38%), indicating that high-ticket items were the chief purchase targets for Mainland tourists. Luxury items continued to be favoured by most Mainland visitors due to the tax difference and quality assurance. The buoyant retail market also benefited the food and beverage operators. The total value of restaurant receipts rose further by 5.7% YoY to HK$22.0 billion in 4Q 2010 after registering a growth of 5.2% YoY in 3Q 2010.

Bidding war over shops in prime locations On the back of vibrant domestic demand and visitor spending, Hong Kong offers a bright prospect for growth in retail sales. This means big new opportunities for international retailers to tap into this lucrative market, especially the fashion and luxury goods segment. During 1Q 2011, a new trend which saw international retailers relocating after an intensifying bidding war among global retailers over rents. For example, a European footwear company in Central Building in Central was taken over by VERTU – a luxury mobile phone company, paying HK$1.5 million a month. The ground floor shop has a gross floor area of 1,200 sq ft and the average rental was HK$1,250 per sq ft per month. International brands aggressively outbid existing tenants to secure shops in prestigious locations to grab a share of Hong Kong retail sales, as Hong Kong is a strategic location to step into inland Mainland cities. Among local retailers, tourist driven retailers stayed relatively more competitive than non-tourist driven retailers. For example, Bonjour - a local cosmetic retailer outbid the existing tenant, a local shoe shop and a local optical shop, and committed to lease a 3,000 sq ft ground floor shop at 1-3 Pak Shak Road, Causeway Bay, for HK$1.43 million per month, which translates into a unit rent of HK$477 per sq ft per month. On the other hand, smaller and home-grown retailers had increasing difficulties in finding suitable premises in prime locations, except for local jewellery entrepreneurs, who have gained substantial profits from Mainland visitors. For example, a local jewellery retailer leased a ground floor shop at 58 Russell Street for HK$1.5 million per month towards the end of January 2011, achieving the highest ever unit rent of HK$2,143 per sq ft per month. This broke the previous record of HK$2,043 per month, when a ground floor shop at 27A-C Lee Garden Road was leased to a local cosmetics store at HK$1.43 million in midJanuary 2011. In addition, two tenants took retail space in Silver Fortune Plaza in the sub-market of Central in March 2011. Standard Chartered Bank committed to lease a batch of retail premises located on basement level, G/F, 1/F and 2/F, involving a total floor area of 20,000 sq ft, for a monthly rental of about HK$3 million (HK$150 per sq ft per month). Meanwhile, Beijing Club, a drinking bar operator, committed to lease 3/F and 4/F, involving a total floor area of 9,006 sq ft for a monthly rental of over HK$700,000 (HK$77.7 per sq ft per month).

Colliers International |

p. 31


hong kong | 1Q 2011 | retail

Supply Hysan Development offered the retail portion of Hysan Place, an office/retail mixed development at 500 Hennessy Road in Causeway Bay, for pre-lease. The development, with a total floor area of about 710,000 sq ft, is scheduled for completion in 2Q 2012. The building includes 15 floors for office use and 17 floors for retail (B2/F-14/F). Given the total retail floor area of 450,000 sq ft, DFS committed to lease about 45,000 sq ft and an international consumer electronics brand committed to lease about 25,000 sq ft. Moreover, international fashion brands had pre-committed some retail spaces in Hysan Place. The completion of Hysan Place mall will offer a variety of fashion boutiques, lifestyle shops, supermarkets and restaurants, thus creating a bigger shopping interest in Causeway Bay. It enjoys close proximity to all forms of public transportation, which will draw strong pedestrian flow to the area.

Hysan Place

p. 32

| Colliers International

Source: Hysan


hong kong | 1Q 2011 | retail

Rental Trend strong demand for flagship stores Market focus continued to be on traditional shopping districts (i.e. Causeway Bay, Central, Tsim Sha Tsui and Mong Kok). The market continued to witness solid commitments by international retailers, as many of them became more certain about their business directions in view of the prospective growth in the region. Strong demand for flagship stores and ground floor shops on high streets in key shopping areas from international retailers, as well as with reducing supply in core areas, prompted landlords to remain aggressive in asking rents.

Strong rental growth in traditional shopping districts Retail rents picked up at a faster growth momentum, with average rentals in the four traditional shopping districts of Central, Causeway Bay, Mong Kok and Tsim Sha Tsui rising by 8.1% QoQ in 1Q 2011, following a growth of 5.3% QoQ in 4Q 2010. The growth momentum in 1Q 2011 was predominantly driven by the double-digit growth in prime street rents in key shopping districts, such as Canton Road, Russell Street and Queen’s Road Central.

Russell Street, Causeway Bay

Source: Colliers

The overall retail rental of street shops in the four traditional shopping districts had surpassed its peak level in mid-2008 by 3.4%. In fact, first-tier streets had outperformed other street segments, where Canton Road in Tsim Sha Tsui displayed a 34% increase compared with its 2008 peak level, 26% growth in Queen’s Road Central, 18% in Russell Street in Causeway Bay and 15% in Sai Yeung Choi Street in Mong Kok. The aggressiveness of international brands in securing retails spaces in prime areas resulted in growing rental divergence between first-tier and second-tier streets.

Retail Rental Index by Major Districts* district Causeway Bay

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

1Q 2011 (% QoQ)

222

228

235

247

268

8.4%

Central

226

231

239

252

273

8.3%

Mong Kok

172

176

181

189

203

7.3%

Tsim Sha Tsui

259

266

274

289

313

8.2%

Overall

218

224

230

242

262

8.1%

(Nov-2002 = 100)

* Street level shops on key street segments

Source: Colliers

Colliers International |

p. 33


hong kong | 1Q 2011 | retail

Investment Market Activity Contraction in sales volume The investment sales market saw fewer buying sprees during 1Q 2011 while a batch of local investors continued to dominate sales activity. The volume of sales transactions with lump sum considerations of HK$10 million or above experienced a 32% QoQ drop in 1Q 2011. Meanwhile, the number of sales transactions with lump sum considerations of HK$10 million or above in traditional shopping districts of Central, Causeway Bay, Tsim Sha Tsui and Mong Kok, saw a larger decline of 40% QoQ over the same period. The volume of sales transaction slowed, as prospective buyers had yet to match vendors' asking prices.

 ����    

   

     

  





















































































Source: Colliers

Record prices achieved given the low interest rate environment Despite falling transaction volume, a batch of local investors remained keen to secure quality retail properties for long-term growth, considering the continuing relatively low interest rate environment. During 1Q 2011, Emperor Group acquired shops at record prices, where a 600-sq ft shop at 76 Percival Street/60 Russell Street in Causeway Bay sold for a record unit price of HK$633,333 per sq ft, with a lump sum of HK$380 million. This transaction broke the previous record unit price achieved in 3Q 2010, where a 488-sq ft ground shop at 44-48 Yun Ping Road transacted at HK$299.5 million, or HK$613,730 per sq ft.

Further yield compression According to the Rating and Valuation Department, overall investment yields compressed further, from 3.2% in November 2010, to 3.1% as of January 2011. Quality retail premises in traditional locations with average yields stayed below 3%. However, there is concern over substantial price increases in some shops, as these are not linear with rental growth. When prices become too aggressive, the retail sales figures cannot justify such large rental increases.

p. 34

| Colliers International


hong kong | 1Q 2011 | retail Japanese Disaster and Potential Impact on Hong Kong Given that Japan is Hong Kong’s third largest trading partner, the earthquake and tsunami, as well as the nuclear crisis in Japan, will inevitably have an impact on Hong Kong’s import and export trade and retail industries. Trade between Hong Kong and Japan in major commodities, including electrical machinery and appliances, food, cosmetics, apparel and clothing, may be adversely affected in the future. The earthquake and tsunami in Japan on 11 March 2011 severely disrupted Japanese manufacturing activity. Consumer products and food could be contaminated by radiation. This will damage the Japanese brand image, consumers losing confidence, fearing to purchase Japanese food or consumer products, preferring other radiation-free alternatives. The disaster has underscored the importance of the Japanese supply chain of a variety of goods, such as Hong Kong imports of food and consumer products, e.g. cosmetics and electronics. Businesses that rely on sourcing from Japan may go out of business, potentially causing more retail spaces available for lease in the marketplace, thus leading to slower growth momentum in rents. In Hong Kong, the impact of a possible drop in the number of tourists from Japan will not pose a significant impact on total visitor arrivals, since visitor arrivals from Japan only accounted for 3% (99,430 tourists). It is difficult to assess the actual impact at this stage. On the positive side, the Hong Kong retail market will be driven by healthy economic fundamentals of the local economy, robust growth of Mainland China, benefiting from the ever-rising visitor arrivals from Mainland China that provide strong support to Hong Kong retail sales, which will in turn provide an offset to the negative effect of the incidents in Japan.

Colliers International |

p. 35


hong kong | 1q 2011 | RETAIL

Market Outlook The ever-rising number of Mainland tourists going after international brands will remain one of the most important pillars supporting the Hong Kong retail market. The trend of global brands expanding their network in Hong Kong will continue. Given the sustained economic growth, with further increases in the number of inbound visitors, rising inflation and continual growth in retail sales and limited supply of shops in prime areas, overall retail rent in core shopping areas will grow further by 20% in the next 12 months. It is expected to surpass the previous peak level in mid-2008, possibly by 2Q 2011.

480 offices in 61 countries on 6 continents United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 95 • $1.9

Attention will focus on Causeway Bay in the upcoming quarter, in view of the pre-lease of Hysan Place and the opening of Forever 21 flagship store in Capitol Centre, Causeway Bay in 2Q 2011.

• 2.4

billion in annual revenue

billion square feet under management

• Over

15,000 professionals

Due to the spillover effect of strong rental growth in first-tier streets, retail rents in second-tier streets in traditional shopping districts will pick up a fast momentum during the second half of 2011. Colliers International (Hong Kong) Limited: Suite 5701 Central Plaza 18 Harbour Road Wanchai Hong Kong

  

tel



FAX

  



+852 2828 9888 +852 2828 9899

Company Licence No: C-006052





Richard Kirke Managing Director, Hong Kong tel +852 2822 0699 FAX +852 2107 6047 Email richard.kirke@colliers.com









 







 

 

 

 





























































Source: Colliers

Simon Lo Director, Research & Advisory tel +852 2822 0511 FAX +852 2868 5275 Email simon.lo@colliers.com

Copyright Š 2011 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Accelerating success.

www.colliers.com


Buying Property in Hong Kong  

An in-depth look into purchasing real estate in Hong Kong.

Advertisement
Read more
Read more
Similar to
Popular now
Just for you