31 Oct 2016
GREATER CHINA PROPERTY MARKET REPORT Q3 2016
HOUSING MARKET CONTINUES TO OUTPERFORM COMMERCIAL SECTOR
During the third quarter (Q3) of 2016, the residential sector in major Mainland cities outperformed the Grade-A office and prime retail sectors on the back of strong demand. The office and retail markets faced various challenges, including the huge amounts of new supply. Looking ahead, the Mainland’s residential market should continue to see growth in both the number of sales transactions and prices, but at a slower pace because of the implementation of further cooling measures by the government. Meanwhile, abundant upcoming Grade-A office and shopping mall supply on the Mainland is expected to soften rental growth and push up vacancy rates in major cities.
In Q3 2016, Beijing’s Grade-A office market witnessed a drop in rents, as landlords offered rental incentives to attract tenants to take up vacant space. In Shanghai, the Grade-A office vacancy rate rose owing to the closure of many P2P enterprises, dragging rents down 2.0% quarter on quarter (Q-o-Q). The Guangzhou market was relatively quiet, with the vacancy rate edging up slightly as three new projects completed in Q3 added 240,000 sqm of new office space.
In Hong Kong, the leasing market remained lukewarm on Hong Kong Island, limited by the lack of available space. The Kowloon market, in contrast, remained active, driven by strong relocation demand from tenants on Hong Kong Island. In Taipei, overall rents remained stable, with satisfactory absorption, driven by relocation demand within districts.
Looking ahead, with abundant supply, Grade-A office rents in Beijing, Shanghai, Guangzhou and Taipei are expected to decline or grow slowly. In Hong Kong, the market is expected to continue to polarise, with office rents increasing further in core business districts because of tight availability and dropping in decentralised areas, with abundant supply in the pipeline. The Taipei market should remain stable with no new supply expected until Q3 2017.
The luxury residential market in the Mainland’s major cities remained active in Q3, driven by booming supply and strong demand during the traditional peak season. Among the three first-tier cities, Guangzhou led in terms of price growth, with a significant 6.9% Q-o-Q increase, followed by Shanghai and Beijing with increases of 3.5% and 2.1%, respectively. Luxury home prices are set to rise in Q4, given the high premiums for recent residential land sales, but growth will be slower, as the government has implemented more restrictions to cool the overheated market, including higher mortgage payments and home purchase restrictions.
Luxury home prices in Hong Kong continued to recover in Q3, boosted by improved market sentiment amid robust activity in the primary sales market. Despite abundant housing supply and a potential US interest-rate hike, strong residential demand and competitive developer sales packages are expected to further stimulate the market. Home prices are set to remain stable over 2016.
The luxury residential market in Taipei remained suppressed in Q3 due to the high property tax, which dragged down sales volume. With market expectations of a property tax rise, prices are set to soften further.
The rapid development of e-commerce and abundant retail property supply continued to pose challenges to the traditional bricks-and-mortar retail property market, but prime retail rents and vacancy rates in Q3 managed to remain stable in the Mainland’s firsttier cities. To attract footfall, high-end shopping malls in core business districts continued to adjust their tenant mix by allocating more space to food and beverage operators and experimental retailers. In the coming year, retail supply will remain abundant, particularly in noncore and emerging districts. Competition from e-commerce and the continuing popularity of overseas purchases will remain major challenges in the Mainland retail market.
Impacted by fewer Mainland visitor arrivals, Hong Kong’s retail sales market remained weak in Q3. In the first eight months, retail sales value fell 10.2% year on year, attributable mainly to the steep decline in the sales of luxury goods. Along with the decline in visitor spending, both prices and rents of prime street shops decreased. This trend is likely to continue in Q4.
In Taipei, the increasing entry of international brands and the short supply of prime shops sustained retail rents and prices at stable levels in prime retail areas. This is expected to persist in Q4, with an increasing number of visitors from Europe, Japan and Hong Kong making up for fewer Mainland tourist groups visiting the city.
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