The forecasts we made last year for 2013 were generally 5% to 10% higher than actual figures says property consultancy savills. The reason savills forecasts proved to be too bullish lies in the slew of government measures introduced over the past 12 months which have succeeded in slowing or reversing price growth. While we recognised policy risk, the severity of the measures and the inclusion of the non-residential sector took us by surprise.
A generally weak financial services sector affected both the grade a office and luxury residential markets at the top end. Central office vacancy has increased substantially and rents will end 2013 5% down. In the luxury residential market, rents are expected to fall 5% to 10% this year. Retail has had another strong year. But we note some weakness in secondary streets and sectors such as watches and jewellery.
Emerging trends this year have included a subtle shift in traditional preferences for central and the peak. International commerce centre broke the spell of central in 2010 and businesses have been much more prepared to locate outside the traditional cbd since. Meanwhile, residential clients no longer favour the peak over all other districts with increasing numbers expressing a preference for common goal. Savills is synonymous with a high-quality service offering and a premium brand, takes a long term southside or even sai kung.
A better environment and more school options are given as reasons. The peak endures a damp climate for large parts of the year. In the retail market, while prime malls remain popular, retailers are beginning to focus more in the new territories and fringe kowloon as more same day mainland visitors shop in these areas. We note that this type of same-day spending is much more convenience orientated.
In terms of prices, all markets have begun to soften this year with falls of 5% to 10% recorded in most sectors. Government measures combined with a growing risk that tapering may start soon in the us and interest rates will eventually start to rise, all contributed to the decline.
In the office market we expect to see some re-centralisation and upgrade demand as rents in central begin to look more affordable again. In decentralised areas, the volume of strata title stock will dictate rental falls in some districts as strata-landlords are often more ready to discount rents. Demand is expected to remain generally lacklustre.
With no new hiring and little firing, the markets are generally frozen and this is expected to translate into further falls in residential rents next year, in the order to 5%. As will be the case in the office market, little new supply will offer continuing support, limiting any downside.
In the retail market we expect sentiment to remain generally positive with some caution with respect to overheads. As availability of stock in prime streets improves, rents may come under some downward pressure. Prime malls will remain the location of choice for the international brands and rents will continue to rise in this sub-sector.
In terms of prices, government measures combined with a less accommodative monetary policy in the us will result in further declines. Owners currently remain reluctant to lower prices and residential developers launching projects in the primary market have succeeded in unlocking demand with 10% to 15% discounts.
In the commercial markets we expect to see further declines in prices in the order of 3% to 5%, with central office prices likely to take a harder hit of 5% to 10% decline.
Central grade a office -5% 0 to -5%
Overall grade a office 0% -5%
Prime street shop 0 to -5% 0 to -5%
Shopping centre +10 to +12% +10%
Luxury apartment -5% to -10% -5%
Townhouse residential -5% to -10% -5%
Comparison of 2013 property price forecasts for 2014 with estimated full
Central grade a office 0% to -5% -5% to -10%
Overall grade a office 0 to +5% 0 to -5%
Prime street shop 0 to -5% 0 to -5%
Luxury apartment -5% to -10% -5% to -10%
Townhouse -5% to -10% -5% to -10%
Comparison of 2013 property yields forecasts for 2014 with estimated full
End 2013e end 2014f
Central grade a office 2.5% 2.5%
Overall grade a office 3.0% 3.0%
Prime street shop 3.5% 3.5%
Luxury apartment 2.7% 2.8%