Today: March 23, 2018, 12:32 am

Divergence between Core and Non-Core Areas in Office and Retail Markets Defines the Rental Trends in 2016 2017-01-10 10:37:01
  • The office market in 2016 was characterized by upbeat activity in Greater Central and dominated by leasing from Mainland Chinese companies, supporting a growth in rentals by 8.4% during the last year and a forecast mild growth of 3 to 6% this year
  • The drop in high street retail rents narrowed throughout 2016, with the hope of stabilizing in 2017.

Divergence between Core and Non-Core Areas in Office and Retail Markets Defines the Rental Trends in 2016

Cushman & Wakefield
Elisa Yiu, +852 2507 0637
Associate Director
Marketing and Communications, Hong Kong
Creative Consulting Group
Esther Kam, +852 3159 2978
Penn Leung, +852 3159 2986

DTZ/Cushman & Wakefield, a global leader in commercial real estate services, revealed that the overall office rent in Hong Kong had risen by a modest 1.9% during 2016, but Greater Central rents had seen a strong increase of 8.4% year-on-year, reflecting the keen demand of Mainland Chinese companies for business space in the CBD, whilst non-core districts were under pressure due to ample supply. Amid a long-running bearish retail market since 2014, retail rentals began to stabilize towards the end of 2016, with a decline of less than 1% in rents for some core districts. Thanks to solid sales of daily goods, retail rents in secondary districts, such as Yuen Long and Tuen Mun, displayed a different trend from that of the prime districts. The divergence in sales and rental development between the core and non-core districts looks set to continue in 2017.

The growth in office rents in Greater Central was the most robust in Q1, but slowed in consecutive quarters, reaching HK$120.09 per sq ft effective per month in Q4, which was up 1.1% from Q3. Prime Central rents rose by 1.4% from Q3 to HK$134.21 per sq ft per month in Q4. The lowest rent was recorded in Hong Kong South, at HK$29.36 per sq ft per month in Q4. However, the district saw the biggest annual increase at 9.3%, surpassing the increase in Greater Central. The biggest annual decline in rents was recorded in Kowloon Others at a drop of 3.2% year-on-year to HK$33.96 per sq ft per month in Q4 of 2016.

Mr John Siu, DTZ/Cushman & Wakefield’s Managing Director, Hong Kong, commented, "The keen demand by PRC companies has been key to the continuous rise in rentals in Greater Central throughout 2016, whereas the non-core districts, such as Kowloon East and Kowloon Others, were challenged by unfilled stock. The exception is Hong Kong South. Boosted by the improved accessibility brought by the newly launched MTR South Island Line, the availability in Hong Kong South dropped by 4.8 percentage points to 14%, and the rents of the district have been steadily increasing as more and more companies move in."

The overall availability rate rose to 7.2% in Q4, the highest level in 2016. This was after an overall negative absorption for Q2 and Q3 2016 before returning to a positive net absorption in Q4. Despite a negative absorption in Greater Central during every quarter of 2016, with total released stock of more than 185,000 sq ft, it made little impact on the rental growth. Mr Andy Yuen, DTZ/ Cushman & Wakefield’s Senior Director, Office Services – Agency in Hong Kong, said, " This is a testimony to the underlying force of PRC companies as the major tenants in Greater Central and their determination to secure prime business space with high rents. Along with the banking and finance sector in Greater Central, insurance companies have been the main drivers of new lease demand last year, but the companies have preferred non-core districts, as their consolidation or expansion initiatives often required larger floor plates that were hard to find in core locations."

Mr Siu added, "Thus, in 2017, we believe that the pattern remains of PRC financial companies' continuing focus on Greater Central when seeking office space, whilst the cost-conscious MNCs, as well as those looking to expand or consolidate, will tend to decentralize. Currently, we see no signs of slowing down regarding the pace of leases by PRC companies in Greater Central, which will underpin an expected rental growth of 3 to 6% of the district in 2017. Moreover, with substantial new supply this year of up to 2.9 million sq ft, about 60% of which to be located in Kowloon East, given attractive rental terms, we would expect increased leasing activity in Kowloon East."

For the retail market, the visitor volume in 2016* was down 5.1% year-on-year, but the speed of decline slowed during the last few months. Without the impressive spending by tourists on luxury goods, sales of jewelry and watches in 2016* fell by more than 40% from the peak level in 2013. During the past three years, among the major types of goods, only the daily goods (medicine, cosmetics, food, tobacco and alcohol sectors) have recorded growth, while the luxury sector has suffered. These had a major impact on the retail mix of prime locations and the rental trends.

* Based on published figures from January to November 2016 and estimated figures for December 2016

Without the support of the expansion of the luxury sector, high street rents fell on a quarterly basis since mid-2014, but the falling slowed in 2016. Throughout the last year, the drop in high street shop rents in the prime areas continued to narrow from 5 to 7% in Q1 to 0.5 to 1.5% in Q4. Mr Kevin Lam, DTZ/Cushman & Wakefield's Executive Director, Head of Business Space – Retail & Office, Hong Kong, said, "After a prolonged rationalization of high street rents over the past two years and the resulting change in the trade mix on the high streets, core district rents are close to bottoming out at the end of 2016."

Due to the changed patterns in retail consumption, both retailers and investors are eyeing sales and shop fronts in non-core areas, such as Tuen Mun and Yuen Long, where steady sales of daily goods have supported a growing rental trend in recent years. As of Q4 in 2016, retail rents in Tuen Mun and Yuen Long had grown by 44.1% and 9.2% from the peak in 2013, in contrast to the rental decline of 40 to 55% recorded in prime districts over the same period.

Meanwhile, the slowing pace of rental decline was followed by tighter availability of shop fronts in core areas. Whereas there was no change in vacancy rate in Causeway Bay, Tsim Sha Tsui and Central over Q3, retail space in Mongkok further contracted. Mr Lam said, "While we reserve some hope for the prime retail rents to stabilize in 2017, with an anticipated drop of less than 5% during H1, we believe the non-core areas can continue to count on the growing sales of daily goods, and a growth of 3 to 5% in main street rents can be expected for Tuen Mun and Yuen Long in H1."

For the F&B sector, there has been continuous growth in business for most types of F&B outlets during the past six years, but in 2016, the growth slowed down to a single-digit level. Rents of F&B space also began to taper off, with all prime districts recording a quarterly decline from 0.4 to 1.2% in the final quarter of 2016. Mr Lam commented: "Given no major change that is foreseeable for the F&B sector, we expect that the overall F&B rents in the first half of 2017 will be stable or drop by 3 to 5%, as the rental affordability will be limited by the operation mode of the F&B industry."

About DTZ/Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. In Greater China, the firm has a co-branded presence under the name of DTZ/Cushman & Wakefield and operates 20 offices in the region. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of US$5 billion across core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management, project management, tenant representation and valuation & advisory. To learn more, please visit or follow us on WeChat (DTZ_China) and LinkedIn (

Press Information

Published by
Hossam Abdel-Kader
+43 1 9582319

# 1438 Words
Related Articles
More From Business
RCBC Bankard launches new Platinum card with [..]
Manila, Philippines and Tokyo, Japan, Mar 22, 2018 - (ACN Newswire) - JCB International Co., Ltd. (JCBI), the international operations [..]
Project Laneways Offers Change Management Courses in [..]
Project Laneways has announced it will be conducting change management courses in Canberra in May. The Change Management Foundation [..]
Jaguar Leaps Onto The SUV Bandwagon With [..]
When it came to jumping on the SUV bandwagon, it was inevitable that Jaguar would make the leap; after all, [..]
Bright Light Stocks Independent Control Systems for [..]
Through their website Bright Light provides a range of independent control systems that will provide both hardwired and wireless [..]
Easy, Convenient and Time-saving: Steam Cleaning Without [..]
Kärcher Steam Cleaners give you the experience of cleaning chemical-free, killing 99.99% of common household bacteria, santitise [..]

Disclaimer: If you have any questions regarding information in this press release please contact the company added in the press release. Please do not contact pr-inside. We will not be able to assist you. PR-inside disclaims the content included in this release.