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Hong Kong Market Sentiment Improves as Local Banks Follow U.S. Fed Interest Rate Cut

Office availability rate drops while high street retail rents continue to recover

  • The Hong Kong Grade A office market witnessed positive net absorption for the fourth consecutive quarter in Q3 2024 to reach 324,100 sq ft, bringing the overall availability rate down to 19.3%.
  • Core retail district high street rents recorded low single-digit growth q-o-q as leasing momentum gained pace, with banking and financial institutions taking opportunities to expand at prime locations
  • The residential market finally saw the hoped-for interest rate cut, yet buyers need more time to digest the news. Housing prices remained under pressure in the still-high rate environment, declining by 6.2% in the first eight months, while total transactions recorded 10,200 units in Q3.

HONG KONG SAR - Media OutReach Newswire - 8 October 2024 - Global real estate services firm Cushman & Wakefield today held its Hong Kong Property Markets Review and Outlook Q3 2024 press conference. The start of the U.S. Federal Reserve rate cut cycle in September, coupled with the recent rebound in the stock market, sent positive signals to the Hong Kong residential market, with market sentiment and transaction numbers expected to further improve in Q4. The Grade A office market has now recorded positive absorption for four consecutive quarters, and several new lettings of more than 10,000 sq ft were concluded in the quarter, pulling the overall availability rate down to 19.3%. In the retail market, despite falling high street store vacancy and growing rental levels, the change in tourist spending patterns and the northbound travelling of local residents continued to pose challenges to F&B operators, leading to F&B rents adjusting downwards in Q3.

Grade A office leasing market: Net absorption remained positive in Q3 2024, while the availability rate fell for the first time in two years

Overall Grade A office net absorption recorded 324,100 sq ft in Q3, bringing total net absorption for the first three quarters to around 980,000 sq ft. The total new leasing area in Q3 reached 833,600 sq ft, with Greater Tsimshatsui taking the greatest share at 23%, followed by Greater Central and Kowloon East both at 19%. The banking & finance sector took a 38% share of total leased area, followed by consumer products / manufacturing at 18%, and professional services & real estate at 16%.

With no new supply entering the market in Q3 2024, the overall availability rate fell for the first time since Q1 2022, registering 19.3% in Q3 2024. However, Grade A office rents remained under pressure, retreating by 2.4% q-o-q or 4.3% year-to-date (Chart 1). As cost-saving or flight-to-quality moves have become popular occupier strategies, landlords are being more flexible and offering incentives to compete for tenants. Consequently, we expect the rental correction to continue through the remainder of the year, and we forecast overall Grade A office rents to drop in a range of 6% to 8% for the full-year 2024.

John Siu, Managing Director, Hong Kong, Cushman & Wakefield, said, "The Hong Kong Grade A office market registered positive net absorption for the fourth consecutive quarter in Q3 2024. We saw numerous new lettings of more than 10,000 sq ft in the quarter, while the overall availability rate fell for the first time since Q1 2022. This suggest that market momentum has gained pace when compared to 2023. Looking ahead, we expect demand from the banking & finance and professional services sectors to gradually recover, if the recent stock market recovery and IPO performance, which are underpinned by the interest rate cut and the macroeconomic policy stimulus from the Chinese mainland government, can sustain through the coming months."

Retail leasing market: New leasing activity gained momentum, supporting the overall high street vacancy rate to drop further

Hong Kong total retail sales for the January to August 2024 period dropped by 7.7% y-o-y to record HK$249.8 billion, impacted by inbound tourists' and local residents' changing consumption patterns, combined with the strong Hong Kong dollar eroding shoppers' purchasing power when compared to alternative tourist destinations. Among the key retail sales categories, Jewellery & Watches and Fashion & Accessories, formerly popular with tourists, declined 15.8% and 11.0% y-o-y, respectively. The only key retail category to witness positive growth was Medicines & Cosmetics, which climbed 6.8% y-o-y.

High street leasing activity gained momentum in Q3, with action by local and international brands picking up on the back of attractive rent offerings at prime locations. The overall high street vacancy rate continued to fall to record 8%, a new lowest level since the pandemic. Vacancy rates eased more notably on the Kowloon side, with Mongkok dropping 2.7 percentage points q-o-q to 8.4%, and Tsimshatsui falling to 9.4%. Vacancy in Causeway Bay remained stable at 2.6%, while Central rose slightly to record 8.6%. Stronger leasing sentiment supported high street rents to further recover in Q3. Rents in Causeway Bay, Central, Tsimshatsui and Mongkok picked up in a range of 1.0% to 2.3% q-o-q. However, restaurant operators have faced challenges due to the changed spending patterns of tourists and residents. F&B rents dropped in a range of 1.5% to 2.5% across districts through the quarter.

John Siu further commented, "Looking into the retail leasing transactions in Q3, sentiment and activity was stronger on Hong Kong Island. In addition, we notice that that some banks and financial institutions have been actively expanding their presence in core districts over the past six months. For instance, several banks opened new wealth management centers on prime streets to capture clients from groups of high-net-worth local and mainland individuals. A number of online securities brokerage platforms also expanded by setting up physical stores in core districts, seeking to raise brand awareness and gain public exposure. Looking ahead, the central government has recently announced a series of stimulus measures to boost the economy, while the U.S. Fed's rate cut is also expected to gradually weaken the Hong Kong dollar, which may in turn strengthen tourists' spending sentiment. The comeback of Hong Kong and Chinese mainland stock markets will likely provide further boosts to consumption sentiment. These positive factors will continue to support the recovery of the Hong Kong retail market, and we expect high street retail rents across districts to rise in a range of 4% to 9% for the full-year 2024."

Residential market: Rate cuts will take time to have an impact on markets, transaction numbers expected to grow in Q4

The U.S. Federal Reserve rate cut in September marked the end of the two-year interest rate hike cycle, leading to a clearer market outlook. Despite Hong Kong banks following with an immediate rate cut, the current HIBOR is still at a relatively high level, hence limiting the short-term impact from the cut. Most buyers maintained a wait-and-see stance in July and August, before the Fed's rate cut decision, with monthly transaction numbers at less than 4,000 cases. We have yet to see a rapid expansion of activity following the Fed's September action, with just 2,850 transactions recorded in that month. Some potential buyers have remained cautious following the rate cut, waiting to observe the continuity and pace of further rate reductions in the coming months. Within the residential market, first-hand transactions accounted for 32% of overall transaction numbers between January and August, and we expect that the primary home sales market will be most active, with developers now keen to launch further new projects for sale.

Edgar Lai, Senior Director, Valuation and Consultancy Services, Hong Kong, Cushman & Wakefield, mentioned, "Hong Kong housing prices continued to adjust during the quarter. Rating and Valuation Department data shows that the housing price index declined by 1.7% m-o-m in August, bringing the cumulative drop in the first eight months of the year to 6.2%. According to Cushman & Wakefield data, our mid-and-small size units price index dropped by 8.3% for the first nine months. Notably, home prices in City One Shatin, representing the small-sized market, declined by 7.4% q-o-q. Prices at Taikoo Shing, representing the middle-sized market, declined by 3.6% q-o-q, while Residence Bel-Air in the luxury market dropped by 4.9% q-o-q. However, our verbal enquiry index level slightly picked up following the rate reduction, suggesting that market sentiment and transaction numbers could both gradually move upwards in Q4. We currently forecast overall residential transaction numbers to rise in a range of 15% to 20% y-o-y for 2024.

Rosanna Tang, Executive Director, Head of Research, Hong Kong, Cushman & Wakefield, added, "Most Hong Kong banks followed in the footsteps of the U.S. Federal Reserve's rate cut in September, sending a positive signal to the market. Although the residential market did not immediately rebound, the recent notable stock market rise and historical high transaction record do reflect a strengthening in investors' confidence. Looking ahead to Q4, the residential sector will still face pressures from the still-high interest rate environment and ample residential inventory. We see the pace of market recovery to be highly dependent on upcoming stock market performance and the pace of further rate reductions. Historically, low interest rates will benefit the housing market, while housing sector performance will lag the stock market for a few months. Against this backdrop, if the rate cut and stock market comeback can persist, the wealth effect will bring renewed confidence to the residential market. We expect housing market prices to enter a consolidation phase in Q4, although our current forecast is for prices to further correct in the range of -5% for the full-year 2024. Meanwhile, the overall residential rental level, which has gained 6.2% in the first eight months of the year in response to the inflow of international talent and Chinese mainland students, is expected to rise in a range of 5% to 10% for the full-year 2024."
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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 nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 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), sustainability and more. For additional information, visit or follow us on LinkedIn ().

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