Monitoring the trends of the Hong Kong property market now, to help their readers make critical predictions for what is to come:

Landlords becoming more aggressive in securing prospects

Agency view (Office Services)
A shipping company has agreed to lease 47,000 sq ft of office space at Manhattan Place in Kowloon Bay to meet its relocation requirement from Mass Mutual Tower in Wanchai. Office floors at Enterprise Square 5 in Kowloon Bay and Manulife Financial Centre in Kwun Tong are under close negotiation by various parties, aimed at concluding 27,000 sq ft over the next couple of weeks. In addition, active negotiations are taking place over office spaces at Goldin Financial Global Centre in Kowloon Bay, with the entire low-floor zone and two whole floors in mid-zone under close offer. In general, the effective rents of relatively new office buildings in Kowloon East are between HKD28.5 and HKD35.7 per sq ft per month based on net floor area (USD3.65– USD4.58 per sq ft).

Research view
Given limited supply of new and low-cost options on Hong Kong Island suitable for tenants that require sizable floorplates, we think the Kowloon East district will continue evolving into an attractive and feasible location to meet their expansion, upgrading or relocation requirements, with Kowloon East the location accounting for the lion’s share of new supply in Hong Kong.

Workplace strategy emerge as a growing trend

Project Management view
The demand for Workplace Strategy consulting services prior to signing a lease is on the up and enquiries around the feasibility and suitability of applying Alternative Workplace Solutions (AWS) to accommodate long-term business requirements and growth are becoming more and more frequent. Clients are more aware then ever of the need to truly understand their business operations, the utilization of the premises, the company’s culture, the impact of the workplace on wellbeing, staff retention and attraction and are even more aware of the importance of choosing the right location for a new office, with the right footprint, with built-in flexibility to accommodate the ever-changing market conditions. With rent and occupancy costs typically taking around 5%-10% of a company’s revenue here in Hong Kong, it is even more critical, that solid, informed, real estate decisions are made today, to ensure business security five to ten years down the road.

Residential rents stabilised in March after declining for six months

News
After consecutive declines over the past six months, average rents at major housing estates in Hong Kong stablised at HKD30.74 per sq ft per month (USD3.94 per sq ft) in March 2016, compared with HKD30.64 (USD3.93 per sq ft) in February, according to a private survey.  This represents a 10% decline in rents since their peak in September 2015. (Source: SCMP, 21 April, 2016)

Research view
In our opinion, residential rents should stabilise in the near term but will continue to face downward pressure. Global banks and investment banks are a key source of high-paying residential tenants, but the financial sector is under significant pressure to reduce costs and headcount. Another factor likely to weigh on rents is the fact that more homes available for lease due to the subdued sales market.

Foreclosure luxury flat at 39 Conduit Road put up for auction

News
A distressed residential unit at 39 Conduit Road in Mid-levels will be offered for auction on 28 April 2016, with an opening bid of HKD98m (HKD39,580 or USD5,100 per sq ft). The 2,476 sq ft flat was sold in June 2015 for HKD135m (HKD54,506 or US7,025 per sq ft). Henderson Land’s 39 Conduit Road has seen some of the most expensive apartment transactions in Asia. In December 2015, a 5,732 sq ft duplex at 39 Conduit Road was transacted at HKD595m, or HKD103,762 (USD13,370) per sq ft – a price on a per square foot basis that set a record high among apartments in Asia. (Source: SCMP, 15 April, 2016)

Research view
While global and Chinese economic slowdown are exerting pressure on businesses, adding risks to Hong Kong’s housing market, we do not expect property foreclosures in Hong Kong to accelerate. The situation today differs from previous housing meltdowns, when borrowing costs and debt levels were high. Government curbs on mortgages and stamp duties since 2010 have kept debt levels low and squeezed out speculators. Excessive liquidity is still prevalent throughout the global economy, and without high levels of leverage in Hong Kong, the likelihood of a drastic increase in foreclosures seem remote. Given a severe shortage of supply in the ultra-luxury segment, prices for super-deluxe properties should continue to hover near record levels.