hong kong market summary 2q14

Hong Kong Property Index Preliminary Summary July 2014 (2Q14)

The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part.

Q-o-Q Changes Capital Values Rents

Overall 0.4% 0.8%

Central 0.4% 1.2%

Wanchai/Causeway Bay 0.1% 0.6%

Tsimshatsui 0.3% 0.9%

Hong Kong East 0.4% 1.0%

Kowloon East 0.8% -1.4%

Office

A subdued leasing market contributed to net take-up amounting to just 15,500 sq ft (net) in 2Q14, down from 303,200 sq ft (net) recorded in the previous quarter.

In Central, leasing demand continued to be largely supported by smaller requirements. Nevertheless, Central was the strongest performing submarket with net take-up amounting to about 79,600 sq ft (net); largely on the back of expansion and relocation requirements from the banking and finance sector.

Increasing competition from industrial building refurbishment projects and landlords shifting properties from the sales to leasing market led to rental decline in Kowloon East. All other office submarkets, however, recorded slight rental growth.

Two government sites were made available for sale via public tender in 2Q14. First Group Holdings won the tender of a site in Cheung Sha Wan for HKD 1.0 billion (AV HKD 5,177 per sq ft, gross). A second site, located at 15 Middle Road in Tsimshatsui with a site area of 28,309 sq ft and maximum buildable GFA of about 339,700 sq ft was put on the market on June 27.

Citigroup purchased the East Tower of One Bay East in Kwun Tong from Wheelock Properties for a record HKD 5.4 billion (HKD 10,600 per sq ft, gross), marking the largest single office transaction in the city.

Retail After a fast start to the year, total tourist arrivals grew by a more

moderate 10.9% y-o-y in April-May. Tourist arrivals from Mainland China also slowed, growing by 13.9% y-o-y in April-May after growing by 20.0% y-o-y in 1Q14.

The slowdown in tourist arrivals along with a high base of comparison contributed total retail sales declining by 9.8% y-o-y in April the sharpest year-on-year drop in a month since February 2009 trimming year-to-date growth to 0.7% y-o-y.

With retail sales slowing, retailers adopted a more pragmatic approach towards real estate decisions though demand for shops in prime locations along High Streets remained intact.

Despite a slowdown in leasing activity and rental growth, investment volumes recorded a slight pick-up in 2Q14 with larger sized premises in non-core locations with upgrading potential drawing the greatest interest.

Residential

The government relaxed conditions associated with the Double Stamp Duty (DSD) policy in 2Q14. Under the changes, second-home buyers can seek a refund of the DSD if the old flat is sold within six months of the conveyance date rather than the agreement for sale and purchase date of the new flat.

Market activity picked up in April and May, albeit off a lower base of comparison with average monthly home sales reaching 5,026 transactions, up from the 3,596 in 1Q14 and 3,814 in 2Q13.

Nonetheless, demand for luxury units remained soft, with preliminary data showing 49 properties priced above HKD 50 million being traded, down 9.3% q-o-q and 5.8% y-o-y.

Activity was largely driven by sales in the primary market as developers continued to offer discounts to attract the interest of buyers.

Eight residential sites were sold via government public tender for a combined HKD 9.4 billion in 2Q14.

Luxury rents continued to trend lower with leasing activity in the top-end of the market remaining subdued.

Industrial

Led by a pick-up in trade with advanced economies and the Mainland, the total value of exports and imports grew by 1.7% y-o-y and 3.1% y-o-y, respectively, in April-May; a slight improvement on the growth recorded in 1Q14.

The on-going trend by companies to outsource more of their supply chain to 3PLs along with improvements in the external trading environment underlined demand for warehousing space in 2Q14. As a result, vacancy rates remained low despite rentals being at record high levels.

Japanese 3PL operator, Konoike Transport leased 58,500 sq ft in Gateway ts, Ungert Line leased an additional 25,900 sq ft in Tai Hing Industrial Building and OM Log (Asia) expanded a further 53,000 sq ft in Western Plaza.

Demand for warehousing space near the Kwai Chung container port remained strong; especially for properties with floor plates over 40,000 sq ft and monthly rentals below HKD 10 per sq ft.

Bonjour acquired the whole of Harrington Building in Tsuen Wan for HKD 490 million (HKD 2,189 per sq ft). The local cosmetics retailer plans to self-occupy and hold the property for long-term investment.

According to local press, logistics property fund Goodman, is reportedly negotiating the purchase of Central Textiles a group of five low rise industrial buildings in Tsuen Wan for about HKD 1 billion. The existing buildings will likely be redeveloped.

Supported by low vacancy rates, most rental markets continued to push forward despite underlying weakness in demand. Capital

values held steady, buoyed by en-bloc purchases of owner-occupiers, including Citis acquisition of the East Tower of One Bay East

office development in Kwun Tong for market leading HKD 5.4 billion.


Warehouses 4.7% 3.1%


Luxury -0.3% -2.3%

Mass 0.0% N/A


High Street Shops 0.5% 0.2%

Overall Prime Centres N/A 0.1%

Premium Prime Centres N/A 0.2%

COPYRIGHT JONES LANG LASALLE 2014 All rights reserved. No part of this publication may be published without prior written

permission from Jones Lang LaSalle. The information in this publication should be regarded solely as a general guide. Whilst care

has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any part. We

stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities

rather than absolute certainties. The process of making forward projections involves assumptions regarding numerous variables

which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw

your attention to this factor.

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Denis Ma Head of Research Hong Kong [email protected] +852 2846 5135 Jones Lang LaSalle +852 2846 5000

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hong kong market summary 2q14

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