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colliers international | HonG KonG

The Knowledge

MarKet oVerVieW | octoBer | 2009

Market Summary

OFFICe SeCTOr

• Notwithstanding the encouraging price performance in the sales market, the leasing side of

the market has not yet seen a full recovery, although the pace of decline in rentals tapered off

MarKeT TreNDS further, from 12.1% quarter-on-quarter (QoQ) in 2Q2009 to 1.3% QoQ in 3Q2009.

• The overall Grade A office market is expected to see more solid growth if there is a sustained

revival of global demand over the next 12 months. However, it is our view that the overall

pace of rental growth will be capped at 5% during the period unless or until the bulk of

OFFICe

occupiers once again adopt an expansionary strategy.

LUXUrY reSIDeNTIaL SeCTOr

LUXUrY reSIDeNTIaL

• Thanks to the encouraging signs of an economic recovery and the additional push caused by

the sustained low interest rate environment, the average transacted price in the luxury sector

INDUSTrIaL increased 9.6% QoQ to HK$14,200 per sq ft as of August 2009.

• Luxury residential rentals are expected to rise about 5% over the next 12 months. Given

the sustained buying interest in the marketplace and expectations of further growth on

reTaIL the economic front, the sales market is predicted to pick up additional momentum, with a

further increase of 5%-10% over the next 12 months.

INDUSTrIaL SeCTOr

• Due to the sustained weakness in the external environment, new leasing demand for industrial

premises remained scarce during 3Q2009. Cost-sensitive tenants remained determined to

reduce their overall outgoings by downsizing and/or sub-letting a portion of their space. As

such, industrial rentals posted a further consolidation in 3Q2009 in the order of 1% QoQ.

• Given the projection that there will be a mild recovery in 2010, it is our prediction that

industrial rentals will see a rise of 3%-8% over the next 12 months.

reTaIL SeCTOr

• With the bid-ask spread between landlords and tenants narrowing further, the pace of

decline in average retail rentals in the traditional shopping districts slowed from a drop of

4.7% QoQ in 2Q2009 to a decrease of 3.0% QoQ in 3Q2009. Landlords started to get firm

on asking rentals, but remained accommodating as far as tenants’ fit-out requirements were

concerned.

• A mild positive rental growth is anticipated over the next 6 to 12 months, but the pace of

growth will be capped at about 3%. However, further rental growth will materialise if there

is a faster-than-expected rise in consumer prices and wage inflation, etc. during the forecast

period.

www.colliers.com/hongkong

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

EXECUTIVE SUMMARY

eCONOMIC INDICaTOrS MeaSUre 2007 2008 2009 2010 2011 2012 2013

GDP YoY % Change 6.4 2.4 -3.3 2.8 3.6 4.3 4.9

Population Million 7.0 7.0 7.1 7.1 7.1 7.2 7.2

Average consumer prices Rate (%) 2.0 4.3 -0.3 1.0 2.2 2.6 2.8

Average unemployment rates Rate (%) 4.0 3.5 6.0 5.8 5.6 5.4 5.4

Best lending rate Rate (%) 7.6 5.3 5.0 5.5 8.0 8.3 8.3

Average real wages YoY % Change 1.9 -1.7 -1.1 -0.2 -0.1 0.2 0.1

Source: The Economist Intelligence Unit; Hong Kong SAR Government; Colliers International (Hong Kong) Limited

SignS of iMpRoveMent UpwaRd ReviSionS

��

After four consecutive quarters of negative With the better-than-expected rebound in 2Q2009

�� economic growth, the local economy posted an and the recent signs of improvement in the external

�� encouraging rebound during 2Q2009, with its environment, the local government revised upward

�� GDP increasing by 3.3% quarter-on-quarter (QoQ) its 2009 GDP forecast from a contraction of

�� as the recessionary pressure, principally from the 5.5%-6.5% to a decline of 3.5%-4.5%. The latest

��

�� major economies, faded gradually. Although the projection by the Economist Intelligence Unit

��

local GDP continued to post a negative growth suggests that the local economy will contract

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of 3.8% on an annualised basis in 2Q2009, the by 3.3% in 2009, which is a significant upward

pace of downward adjustment actually tapered revision compared with the forecast of -6.7% in

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off significantly compared with the contraction June 2009.

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of 7.8% YoY registered in 1Q2009. In addition,

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the recent quarterly rebound implied that the local

�� pRopeRtY inveStMent MaRket

economy has started heading towards recovery and

Source: Census & Statistics Department,

that the worst in terms of the pace of economic Similar to the situation in the first half of

HKSAR Government

contraction is over. 2009, the local property investment market

has been underpinned by strong liquidity in

Looking at the breakdown of economic the marketplace. In the local banking system,

components, total exports of goods continued the aggregate balance continued to remain at a

to post a double-digit decline of 12.4% YoY in high level and the average daily balance was over

2Q2009 as global demand is yet to fully recover. HK$200 billion during the three-month period

Meanwhile, exports of services decreased 5.7% between June and August 2009, representing an

YoY during the period. Despite the fact that there increase of 27% compared with the preceding three

was a rebound in financial market activities, the months. As a result of the strong net inflow of

economic sector was challenged by fear of the capital, the average cost of funds was reduced in

human swine flu. 3Q2009. The typical benchmark adopted by most

banks to offer loans, the three-month interbank

Total receipts from inbound tourism saw rate edged down further by 17 basis points from

immediate consolidation during 2Q2009. On 0.37% in May 2009 to 0.20% in August 2009.

the positive side, the actual performance of

private consumption was more resilient than With the continued fall in funding costs, real estate

originally expected. Despite all the external and assets remained popular among most local players

local challenges (e.g. the spread of the human who have been keen to secure quality developments

swine flu), private consumption expenditure fell with their capital. Among the various property

only marginally by 1.0% YoY during 2Q2009. In sectors, retail was the key highlight due to the

addition to the stimulus measures implemented by sharp increase in the number of sales transactions,

the local government, the increase in stock market which was in the order of more than 120% QoQ

prices and the signs of stabilisation seen in the in 3Q2009. A billion-dollar deal was the sale of the

local job market helped to support local market three commercial/retail podiums - Silver Fortune

sentiment and, thus, local consumption spending. Plaza in Central, and Pakpolee Commercial

The food and beverage sector remained relatively Building and Golden Plaza in Mong Kok - in

resilient, as reflected by the only mild retreat in one single basket to a local investor for a total

the total value of restaurant receipts in the order consideration of HK$1,590 million. Meanwhile,

of less than 1% YoY during 2Q2009. Continental Diamond Plaza, the 29-storey Ginza-

2 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

type commercial/retail development in Causeway number of existing tenants have chosen to exercise

Bay, was also acquired by another local player their break clauses to relocate to cheaper and

for a lump sum of HK$838 million. The other better premises. Since most inexpensive stock

whole-block sales transactions concluded during was absorbed over the past two quarters, asking

3Q2009 were Grade B office buildings in fringe rentals were generally raised by most vendors in

commercial districts and industrial developments 3Q2009. On average, luxury residential rentals

within the price bracket of from HK$100 million increased 2.6% QoQ to HK$35.56 per sq ft per

to HK$200 million. month as of August 2009.

In the retail property sector, the significant increase

Hong kong pRopeRtY MaRket

in the volume of sales transactions essentially

In addition to the continued fall in borrowing overshadowed the leasing market during 3Q2009.

costs, the other key reason for the sustained growth Retail shops with lump sums falling within the

in the volume of sales transactions was growing price bracket of from HK$30 million to HK$50

optimism about a full market recovery ahead. million were the most popular as a batch of local

In the office sector, hiring expectations in the players were confident about a revival in retail

private sector turned more positive in 3Q2009 rentals over the near to medium term. On the

according to the latest findings of human resources leasing front, the key market driver in 3Q2009

consultants. Although the increase in new hires was tenants engaged in the food and beverage

was yet to be fully reflected in the office leasing sector. However, multinational retailers engaged

market in the form of a net increase in floor in high-end fashion remained stagnant throughout

area requirements, there was an improvement the period. As such, average retail rentals for street-

in confidence across the board during 3Q2009. level spaces in traditional shopping locations fell

Individual financial companies took advantage further in 3Q2009, down by 3.0% QoQ.

of falling rentals by snapping up some of the

best office stock in traditional business districts. In the industrial property sector, average rentals

Meanwhile, a number of professional services posted a mild decline of 0.5% QoQ during

firms took advantage of the availability of stock 3Q2009 as new leasing demand remained

in Central to upgrade their office addresses in uninspiring. The bulk of industrialists preferred

3Q2009. With the initial signs of growing leasing to put a hold on their expansion plans in view of

demand in the marketplace, office rentals showed the sluggish external trade performance. Tenants

further signs of stabilisation in 3Q2009. First, the in the warehousing sector remained cautious

pace of decline in rentals tapered off further, from and there was an overall decline in floor area

12.1% QoQ in 2Q2009 to 1.3% QoQ in 3Q2009. requirements among third-party logistics players

Second, the average effective rentals for Grade during 3Q2009. Similar to other property sectors,

A office space posted a marginal rise during the the sales market was relatively more active due to

latter part of 3Q2009. the prevailing low interest rate environment and

the fact that industrial premises involve lower

In the luxury residential property sector, the sales maintenance expenses.

market gained further momentum as buying

interest remained keen, particularly for such top-

tier units as houses on the Peak and in South MaRket oUtlook

Side. Sales transactions with lump sum prices of With encouraging signs heralding a faster-than-

HK$100 million or above saw an 80% QoQ growth expected recovery on the economic front and the

during 3Q2009. The average luxury residential continued inflow of capital into the local real estate

prices increased 9.6% QoQ to HK$14,200 per sector, the performance of sales prices continue

sq ft as of August 2009. On the leasing front, to look good over the next 12 months. However,

there were signs of growing demand from a the prospective upside of capital appreciation will

number medium-sized non-finance companies be largely capped at 5%-10% during the period

during 3Q2009. Overall, the number of local unless there are additional signs of a sustainable

relocations continued to represent the bulk of growth in genuine leasing demand during the

the leasing market activity. Due to a significant same period.

decline in rentals over the past 12 months, a

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 3

OFFICE SECTOR | OCTOBER | 2009

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

GRAdE A OFFICE SECTOR

effeCtive RentS

- 3 Years - 1 Year - 3 months - 1 Month Current Month

(August 2009)

Grade A Effective Office Rentals (HK$ / sq ft / month)

Central 75.07 122.22 68.29 66.75 66.72

admiralty 59.71 95.39 61.13 61.31 61.31

wan Chai 39.06 55.31 34.69 35.28 35.32

Causeway Bay 38.99 55.89 36.21 34.99 34.99

north point 22.23 32.16 23.26 23.10 23.02

Quarry Bay 29.46 37.05 27.14 26.25 26.25

Sheung wan 34.68 57.41 32.56 33.67 33.97

tsim Sha tsui 37.10 44.10 31.03 30.07 29.89

kwun tong 27.79 27.84 15.89 16.27 17.36

kowloon Bay 21.09 24.16 17.20 17.26 17.40

Overall 48.32 69.36 41.79 41.17 41.23

% Change

Central -11.1% -45.4% -2.3% 0.0% -

admiralty 2.7% -35.7% 0.3% 0.0% -

wan Chai -9.6% -36.1% 1.8% 0.1% -

Causeway Bay -10.3% -37.4% -3.4% 0.0% -

north point 3.5% -28.4% -1.0% -0.3% -

Quarry Bay -10.9% -29.2% -3.3% 0.0% -

Sheung wan -2.0% -40.8% 4.4% 0.9% -

tsim Sha tsui -19.4% -32.2% -3.7% -0.6% -

kwun tong -37.5% -37.6% 9.3% 6.7% -

kowloon Bay -17.5% -28.0% 1.1% 0.8% -

Overall -14.7% -40.6% -1.3% 0.1% -

On net floor area basis Source: Colliers International (Hong Kong) Limited

tHe SaleS MaRket tURning tHe CoRneR

Due to the strong net inflow of capital into the Similar to other property sectors, the number of

local system, the sustained volume of liquidity in sales transactions in the office market retreated

the marketplace continued to prompt investors to in 3Q2009 after a significant price growth during

source the best possible investment assets in which the first half of 2009. However, there were no

to park their idle capital. Similar to the situation in signs of a reduction in the level of transacted

the first half of 2009, quality office developments prices as the huge volume of liquidity continued

continued to be favoured by a batch of investors to chase limited stock for sale, particularly in the

who have been looking to secure rental income. core business districts. Individual popular strata-

Although investment yields declined significantly titled office buildings saw a growth in prices in

by more than 150 basis points in the first half the order of 10% over the three-month period

of 2009, in 3Q2009 investors remained keen to between June and August 2009. For example,

commit to any quality opportunistic stock up for the price tag for a batch of strata-titled buildings

sale. One of the key reasons was the expectation in Admiralty went up to around HK$18,000 per

of a sustained compression of yields over the near sq ft as of 3Q2009.

to medium term, particularly when the average

borrowing rate continued to edge down, falling by Notwithstanding the encouraging price

an additional 17 basis points during 3Q2009. performance in the sales market, the leasing side

of the market has not yet seen a full recovery as

rentals witnessed a further downslide during

4 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

KONG | EXECUTIVE SUMMARY

HONGHONG KONG | OFFICE SECTOR | OCTOBER | 2009

3Q2009. On a positive note, there were a couple of up from 7.86% in 2Q2009 to 7.95% in 3Q2009, ��

good signs showing that the market started to turn signifying a lack of sharp improvement in net ��

the corner in 3Q2009. First, the pace of decline take-up across the board in 3Q2009. ��

in rentals tapered off further, from 12.1% quarter-

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on-quarter (QoQ) in 2Q2009 to 1.3% QoQ in In Central and Admiralty, no major office buildings

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3Q2009. Second, the average effective rentals were completed in 3Q2009 and the lack of new

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for Grade A office space posted a mild positive supply in the primary market is expected to be

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growth during the latter part of 3Q2009. sustained in 2010 before the scheduled completion

of the redevelopment of Crocodile House 1 & 2 ��

and Ananda Tower in 2011. Therefore, tenants ��

HiRing expeCtationS

continued to focus on vacant stock for lease in the ��

Although the external environment remained secondary market. Most tenants engaged in the �

challenging and the local office leasing market

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financial services industries continued to favour

has not yet recovered fully, market sentiment some of the top-tier Grade A buildings completed Source: Colliers International (Hong Kong) Limited

strengthened during 3Q2009 due to the solid over the past five to six years in core Central.

improvement on the economic front. In the case However, the vacancy status of most of these

of Hong Kong, the quarterly GDP rebound in developments was generally below 5%, forcing The pace of decline in rentals tapered

2Q2009 served as the most recent signal that the individual tenants to choose other stock that off further, from 12.1% quarter-on-

local economy is heading towards recovery. The had been renovated recently, such as the Nexxus quarter (QoQ) in 2Q2009 to 1.3%

improvement in market sentiment and growing Building. In 3Q2009, Grant Thornton, a leading QoQ in 3Q2009

optimism can be illustrated by the general hiring professional business consultant, committed to

expectations in the private sector. taking a total of 26,500 sq ft in the building to

house its corporate headquarters. Meanwhile,

According to the findings of a survey undertaken a number of medium-sized financial services

recently by Hudson, a leading human resources companies were among the most active players in

consultant, permanent hiring expectations in the the marketplace, seeking to secure an address in

private sector became more positive in 3Q2009. the financial core of Hong Kong. However, with

After the continued fall in hiring expectations some break-lease spaces coming up for immediate

over the consecutive five quarters since 1Q2008, occupation, the overall vacancy rate in Central

in 3Q2009 there was an overall increase in the and Admiralty increased from 4.90% in May to

percentage of respondents looking to increase their 5.59% in August 2009.

headcount again, with that number increasing

from 14% in 2Q2009 to 22% in 3Q2009. Of It has been reported that the site of the Central

the various business sectors, the banking and Without the genuine support of a full

Market Redevelopment might be removed from

financial services sector registered the highest the current Application List soon. In terms of economic recovery, the recent increase

proportion of respondents (i.e. 29%) looking size, the site can be redeveloped into a total office in hiring expectations is yet to be

to increase hiring. According to the survey, this space of 670,000 sq ft, which is the total take–up reflected fully in office leasing demand

growth was attributed to demand in the back and of such space in Central in a year. However, the in the form of a net increase in the

middle office areas. However, the most cautious proposed change will not have a material impact total floor area requirements

player was the consumer sector, with only 11% on the level of new supply in Central over the

of the respondents prepared to increase hiring near term.

in 3Q2009, a reduction from the 15% registered ��

in 2Q2009. In Wanchai and Causeway Bay, there was no ��

increase in new stock, but the average vacancy ��

SUpplY ConditionS rate increased from 5.87% in May 2009 to ��

From the research point of view, the mixed hiring 6.99% in August 2009 after the confirmation

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expectations among various business sectors of the relocation of Manulife from Causeway

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indicates that the economy was in only the early Bay to Kowloon East. In addition, other tenants

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stages of revival during 3Q2009. Without the currently located in the sub-market have been

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genuine support of a full economic recovery, tempted to move to inexpensive alternatives in

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the recent increase in hiring expectations is yet decentralised areas, such as Kowloon East, thanks

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to be reflected fully in office leasing demand in to the rental difference between the various sub-

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the form of a net increase in the total floor area markets on Hong Kong Island and Kowloon East,

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requirements. According to our research, no major which has caused a growing trend of corporate

office developments were completed in 3Q2009, decentralisation in 3Q2009. According to our Source: Colliers International (Hong Kong) Limited

but the average vacancy rate in the market edged research, the percentage of newcomers located

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 5

OFFICE SECTOR | OCTOBER | 2009

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

originally in Wanchai/Causeway Bay that have Harbour East is completed as scheduled. In 2010,

relocated to Kowloon East over the past three the level of new supply is expected to edge down

years increased to over 50% compared with about to 1.1 million sq ft, although the completion of

25% three years ago. Kowloon Commerce Centre (Phase II) is predicted

to be deferred to 2011. Looking further on, the total

In Island East, the average vacancy rate increased new supply in 2011 will be about 1.8 million sq ft.

from 4.77% in May 2009 to 5.44% in August However, the prospective supply over the next two

2009 as individual tenants returned some of their years will remain significantly below the long-term

space to the market for sub-lease during 3Q2009. average, at 2.3 million sq ft per annum.

In addition, most developments in the sub-market

continued to have a low vacancy rate in the order of

deMand ConditionS

less than 5% during the period. Looking forward,

no new stock will be completed in the sub-market As mentioned previously, there was no significant

until late-2010 when the development at 863- increase in leasing demand across the whole market

865 King’s Road is scheduled for completion. during 3Q2009. Although individual companies

Developed by Kerry Properties, the project will engaged in such business sectors as legal and

offer 14 floors of office space with an average floor financial services took advantage of falling rentals

plate size of about 17,000 sq ft, providing a total by snapping up some of the best office stock in

of 250,000 sq ft of office space for lease. traditional business districts, the recent increase

in hiring expectations has yet to be reflected fully

In Kowloon East, the whole sub-market has been in the office leasing market in the form of a net

flooded with new stock since the completion of increase in floor area requirements. Although

a number of Grade A office buildings over the there was a general improvement in market

past year. The average vacancy rate was over 30% sentiment, the bulk of corporate tenants have

in 4Q2008, but has since started to improve. been cautious about their expansion strategies due

Due to the attractive rental terms offered by to the fact that both the local economy and the

vendors, a batch of companies located originally office market are in the early phases of recovery.

on Hong Kong Island has been lured to relocate Meanwhile, as of 3Q2009, a significant amount

their offices to the sub-market. In addition to a of sub-lease space remained in the marketplace

number of financial companies that have chosen and has yet to be fully back-filled. However, the

to move their back-office functions to Kowloon key positive note in the marketplace has been the

�� East, the insurance sector has also favoured the slower-than-expected pace of contraction in the

sub-market as one of the most cost-effective office local finance and insurance sector.

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alternatives. The trend was further substantiated

�� after the confirmation of Manulife’s move into According to official statistics provided by the

Kwun Tong 223. According to our research, Government, as of June 2009, there was a

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companies engaged in banking and finance total of 182,270 people engaged in the finance

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constituted 47% of the total pie as of 3Q2009, and insurance sector, representing only a mild

with consumer products in second place at 13%. contraction of about 1.6%, compared with 185,148

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With the growing popularity of Kowloon East people registered before the onset of the financial

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as the commercial hub of Kowloon, there were tsunami a year ago. The figure turned out to be

signs of a growing percentage of tenants in the lower than the originally anticipated level across

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the board. According to our original predictions

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area engaged in wholesale and distribution in

3Q2009. Given the continued trend of corporate made in early 2009, the degree of contraction in

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relocations, the average vacancy rate in Kowloon the number of people engaged in the financial

Source: Colliers International (Hong Kong) Limited East edged down further from 26.4% in 2Q2009 to sector will be 15% over a two-year period between

22.0% in 3Q2009. Going forward, One Harbour mid-2008 and mid-2010.

The number of job vacancies in the East (previously called Millennium City 7) will

On a positive note, the number of job vacancies

be added to the total stock on completion by

financial sector started to creep up

late-2009. Official information indicates that the in the financial sector started to creep up again,

again, from 1,770 in March 2009

development will have 20 floors of office space, from 1,770 in March 2009 to 1,908 in June 2009,

to 1,908 in June 2009, signifying signifying that the sector had demand for more

that the sector had demand for more each with an average floor plate size of about

17,000 sq ft. people to fill vacancies. If the trend of rising job

people to fill vacancies vacancies continues, the office market will see

Overall, the total supply of Grade A office space an increase in demand for floor space over the

in 2009 will reach about 1.2 million sq ft if One coming months. Meanwhile, the import/export

6 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

KONG | EXECUTIVE SUMMARY

HONGHONG KONG | OFFICE SECTOR | OCTOBER | 2009

GraDe a OFFICe SUppLY (2009 - 2012 aND BeYOND)

NFA

Building District (sq ft) Developer Status

2009

international Commerce Centre (Stage ii) west kowloon 435,400 Sun Hung kai properties Completed

Billion Centre kowloon Bay 485,993 Billion development Completed

one Harbour east kwun tong 248,566 Sun Hung kai properties Under Construction

Total 1,169,959

2010

international Commerce Centre (Stage iii) west kowloon 681,100 Sun Hung kai properties Under Construction

863 - 865 king's Road, north point north point 434,350 kerry properties Under Construction

Total 1,115,450

2011

500 Hennessy Road Causeway Bay 353,279 Hysan development Under Construction

Crocodile House 1 & 2 and ananda tower redevelopment Central 129,205 Citigroup Under Construction

414 kwun tong Road kwun tong 203,570 Chiefast investment ltd Under Construction

133 Hoi Bun Road kwun tong 422,821 Billion development Under Construction

po Hing Center redevelopment, 18 wang Chiu Road kowloon Bay 296,438 Sino land Under Construction

kowloon Commerce Centre (phase ii) kwai Chung 422,450 Sun Hung kai properties Under Construction

Total 1,827,763

2012 & Beyond

Central Market Redevelopment Central 569,500 Hong kong SaR government government land bank

Hotel Ritz Carlton redevelopment Central 191,250 lai Sun/China Construction Bank Under Construction

10 Harcourt Road (Hutchison House) Central 419,468 Hutchison Under planning

(existing Building)

979 king's Road, taikoo place taikoo place 475,165 Swire Under planning

(existing Building)

77 leighton Road Causeway Bay 385,300 Hysan development Under planning

(existing Building)

Total 2,040,683

Note: Source: Colliers International (Hong Kong) Limited

Demolition: Signs of demolition is actively undergoing

Under construction: Construction activity, including either foundation or superstructure, are undergoing on site

Under planning (Existing Building): Building plan for a site currently occupied by a tenanted building is approved by the Government

Under planning (Vacant Building): Building plan for a site currently occupied by an empty building is approved by the Government

Under planning (Bare Site): Building plan for a bare site is approved by the Government

Completed: Building construction is completed and an occupation permit is issued by the Government

Government landbank: Development site included in the Government “Application List” and readily available for application by the private sector

and wholesale sector also experienced a rise in is expected to improve further over the next 12

the number of job vacancies as of June 2009. months as this sub-market is favoured by a wide

However, the total number of people engaged in range of businesses, from finance to trading and

the sector contracted further by 1% to 554,155 consumable distributors.

people as of June 2009.

Further to the recent signs of stabilisation, the

overall Grade A office market is expected to see

MaRket oUtlook

more solid growth if there is a sustained revival of

Looking ahead, the current difference in rentals global demand over the next 12 months. However,

between the central business districts on Hong it is our view that the overall pace of growth will

Kong Island and the decentralised locations be capped at 5% during the period unless or

will prompt more companies to relocate and until the bulk of occupiers once again adopt an

consolidate their operations under one roof. expansionary strategy.

As such, the occupancy rate in Kowloon East

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 7

RESIDENTIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY || OCTOBER || 2009

LUXURY RESIdEnTIAL SECTOR

LUXUrY reSIDeNTIaL MarKeT - KeY MarKeT INDICaTOrS

Rents (HK$ / sq ft / month) Capital Values (HK$ / sq ft) Yields

Aug 08 Aug 09 Aug 10 (f) Aug 08 Aug 09 Aug 10 (f) Aug 08 Aug 09 Aug 10 (f)

Peak 58.44 45.98 47.59 21,902 21,975 23,732 3.20% 2.51% 2.41%

South Side 49.56 37.39 38.59 15,580 15,434 16,669 3.82% 2.91% 2.78%

Mid-levels 45.14 34.06 35.08 11,759 9,831 10,519 4.61% 4.16% 4.00%

Happy Valley 40.00 34.43 35.30 11,026 10,740 11,492 4.35% 3.85% 3.69%

Island East 31.33 25.19 25.77 9,068 8,480 9,074 4.15% 3.56% 3.41%

Average 46.24 35.56 36.63 14,797 14,200 15,259 3.75% 3.00% 2.88%

Source: Colliers International (Hong Kong) Limited

SaleS tRanSaCtionS ReMained aCtive Looking at buyers’ profiles, most purchasers were

Thanks to the encouraging signs of an Thanks to the encouraging signs of an economic local. On the other hand, it was observed that

economic recovery and the additional recovery and the additional push caused by the buyers from Mainland China are accounting for

push caused by the sustained low sustained low interest rate environment, sales an increasing percentage of transactions in the

interest rate environment, sales activity in both the primary and the secondary Hong Kong residential market. The rising property

residential markets continued to enjoy an upward demand prompted the average transacted price

activity in both the primary and

trend in 3Q2009. The pace of decline of local in the luxury sector to increase by 9.6% QoQ to

the secondary residential markets

GDP tapered off notably from 7.8% year-on-year HK$14,200 per sq ft as of August 2009. Despite

continued to enjoy an upward trend

(YoY) in 1Q2009 to 3.8% YoY in 2Q2009. With the positive growth, this is still 4.0% away from

in 3Q2009 the pre-crisis price level as at August 2008.

ample liquidity in the Hong Kong banking system,

interbank offered rates continued to drop. In

terms of property financing, the average cost of In the primary market, developers’ growing

borrowing was reduced further, with the three- optimism about market outlook prompted an

month interbank rates in Hong Kong lowered increasing number of new residential projects

from 0.37% in May to 0.20% in August 2009. to be launched for sale during 3Q2009. The

absence of new launches in the traditional luxury

According to the Land Registry, the total number residential districts for several quarters brought

of sale and purchase agreements for residential about rising pent-up demand in the marketplace.

units recorded further growth of 29% quarter-on- During 3Q2009, the launch of The Masterpiece

quarter (QoQ) to 37,078 in the three-month period in Tsim Sha Tsui, Kowloon, captured much of

ending August 2009. In addition, market attention the market’s attention, attracting buyers seeking

focused on the primary segment. Throughout existing brand new quality units with large floor

the first eight months of 2009, a total of 12,039 plates and a panoramic sea view. The Masterpiece is

residential units were sold in the primary market, a residential project above the K11 retail complex,

already surpassing 2008’s total. developed by New World, providing a total of

345 units, of which there are 307 standard units

In the luxury residential segment, the number of (816-1,500 sq ft) and 38 duplex or adjoining units

sales transactions in the three traditional luxury (2,700-5,620 sq ft). Flats were transacted at an

residential districts of The Peak, Mid-levels and average unit price of HK$18,000 per sq ft, while

South Side increased 35% QoQ during the three- units on the top floor achieved a higher price

month period ending August 2009. Houses and of HK$25,000 per sq ft or above. Elsewhere,

large apartments were particularly sought after. Wheelock Properties’ The Babington in Mid-

The number of sales transactions with lump sum levels was re-launched for sale. Transacted units

prices falling within the bracket of HK$20 million here, with sizes in the range of 902-1,139 sq ft,

to HK$50 million continued to represent the were sold at an average price of about HK$12,000

majority of the luxury market. Meanwhile, number per sq ft.

of sales transactions with lump sum prices above

HK$100 million displayed a distinct growth of

more than 100% QoQ in 3Q2009.

8 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

HONG KONG RESIDENTIAL SECTOR

HONG KONG || EXECUTIVE SUMMARY | OCTOBER | 2009

MaJOr reSIDeNTIaL SaLeS TraNSaCTIONS

Month Property District GFA Price Unit Price

(sq ft) (HK$ m) (HK$ / sq ft)

Jun-09 albergeldie peak 3,580 $120.00 $33,520

Jun-09 overthorpe, House k peak 2,502 $75.80 $30,296

Jun-09 Severn 8, House 2 peak 5,069 $283.86 $56,000

Jun-09 Skyhigh, House 18 peak 7,229 $300.00 $41,500

Jun-09 Strawberry Hill, House 36 peak 3,250 $80.50 $24,769

Jun-09 Strawberry Hill, House 41 peak 3,200 $96.00 $30,000

Jun-09 the Belvedere, House 3 peak 4,790 $196.80 $41,086

Jun-09 villa de victoria, 3/f, flat a peak 3,400 $63.50 $18,676

Jul-09 la Hacienda, Upper townhouse 1 peak 3,600 $88.00 $24,444

Jun-09 estoril Court, Block 3, 38/f, flat f Mid-levels 3,347 $60.00 $17,927

Jun-09 Highcliff, 47/f, flat a, Mid-levels 3,816 $74.60 $19,549

Jun-09 Mayfair, 31/f, flat a Mid-levels 2,870 $60.78 $21,178

Jun-09 Regence Royale, tower 1, 25/f, flat a & B Mid-levels 5,263 $105.00 $19,951

Jul-09 estoril Court, Block 2, 39/f, flat C Mid-levels 3,347 $65.00 $19,420

Jul-09 the Harbourview, 26/f, flat B Mid-levels 2,346 $63.00 $26,854

aug-09 Clovelly Court, Block 1, 39/f, flat B Mid-levels 2,809 $70.00 $24,920

aug-09 Highcliff, 50/f, flat a Mid-levels 3,816 $87.00 $22,799

aug-09 the Mayfair, 37/f, flat B Mid-levels 2,885 $69.80 $25,000

Jun-09 36 Repulse Bay Road, House 2 South Side 4,966 $135.00 $27,185

Jun-09 Belgravia, 26/f, flat B South Side 2,790 $65.00 $23,297

Jun-09 Belleview garden, 14/f South Side 3,901 $86.00 $22,046

Jun-09 las pinadas, House 19 South Side 3,320 $60.00 $18,072

Jun-09 Redhill peninsula, palm drive, House 14 South Side 3,055 $60.00 $19,640

Jun-09 Redhill peninsula, palm drive, House 66 South Side 2,082 $60.00 $28,818

Jun-09 Regalia Bay, phase 1, House d7 South Side 4,902 $72.00 $14,688

Jun-09 Regalia Bay, phase 2, House C35 South Side 4,212 $60.50 $14,364

Jun-09 Stanley Crest, House B South Side 3,894 $69.80 $17,925

Jul-09 19 tai tam Road South Side 12,000 $242.38 $20,198

Jul-09 36 island Road, House a South Side 4,600 $117.50 $25,543

Jul-09 Belgravia, 20/f, flat B South Side 2,790 $71.41 $25,595

Jul-09 Belgravia, 22/f, flat a South Side 2,390 $62.00 $25,941

Jul-09 Belgravia, 22/f, flat B South Side 2,790 $72.90 $26,129

Jul-09 Belgravia, 25/f, flat a South Side 2,390 $62.69 $26,230

Jul-09 Stanley Crest, House d South Side 3,894 $76.80 $19,723

aug-09 35 tung tau wan Road South Side 5,450 $150.00 $27,523

aug-09 Belleview place, House 8 South Side 3,206 $65.60 $20,462

aug-09 Regalia Bay, phase 2, House C27 South Side 4,212 $63.90 $15,171

aug-09 Regalia Bay, phase 2, House C37 South Side 4,212 $65.00 $15,432

aug-09 Regalia Bay, phase 2, House C39 South Side 4,212 $61.28 $14,549

aug-09 Residence Bel-air,villa Bel-air, House 7 South Side 9,254 $212.88 $23,004

Source: Colliers International (Hong Kong) Limited

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 9

RESIDENTIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY || OCTOBER || 2009

tHe leaSing MaRket From a leasing perspective, average luxury

On the leasing front, the market On the leasing front, the market became more residential rentals on The Peak saw a mild increase

became more active in 3Q2009 as active in 3Q2009 as a result of the general three- of 2.0% from HK$45.07 per sq ft per month in

a result of the general three-month lag month lag behind the rising sales market. The May to HK$45.98 per sq ft per month in August

behind the rising sales market number of luxury residential leasing transactions 2009. However, demand for luxury residential

falling in the range of HK$50,000 to HK$80,000 houses in the sub-market remained slow.

continued to represent the major share of the

pie. An increase in occupational demand was SoUtH Side

also observed. There were more newcomers from

Luxury residential prices in South Side registered

the non-finance sector, such as the small and

a growth of 7.1% QoQ from HK$14,413 per sq ft

medium-sized enterprises (SMEs) that came to

in May to HK$15,434 per sq ft in August 2009.

Hong Kong to set up new businesses. Housing

The market saw rising demand for both houses and

budgets for their senior executives typically range

apartment units in the sub-market. For example,

from HK$50,000 to HK$80,000 per month. In

a house with a floor area of 4,600 sq ft at 36

general, the number of relocations continued to

Island Road was sold for HK$117.5 million, or a

represent the bulk of the leasing market activity.

unit price of HK$25,543 per sq ft. In benchmark

Given a significant decline in rentals over the past

developments, such as Regalia Bay, a house with

12 months, a number of existing tenants have

a floor area of 4,212 sq ft was sold in June 2009

chosen to exercise their break clauses to relocate

for HK$60.5 million, representing a unit price

to cheaper and better premises. As an amount of

of HK$14,364 per sq ft. Towards the end of the

inexpensive stock was absorbed, asking rentals

quarter, a house with the same size (4,212 sq ft)

were generally raised by most vendors in 3Q2009.

and similar orientation fetched a total of HK$63.9

On average, luxury residential rentals increased

million, or an average unit price of HK$15,171

2.6% QoQ to HK$35.56 per sq ft per month as

per sq ft. This corresponded to a 5.6% increase

of August 2009.

during the period.

tHe peak Looking at apartment units, such as Hong Kong

During the three-month period between May Parkview, a mid-floor unit with a floor area of

and August 2009, the average luxury residential 1,275 sq ft in Tower 3 was transacted in June 2009

price on The Peak increased 8.5% QoQ from at HK$11.7 million, or a unit price of HK$9,176

HK$20,250 per sq ft in May to HK$ 21,975 per per sq ft. At the end of 3Q2009, a lower-floor unit

sq ft in August 2009. The sub-market saw stronger in the same tower with a floor area of 1,290 sq

demand for houses in prestigious locations. A ft was sold for HK$14.5 million, or a unit price

5,069 sq ft house in SHKP’s Severn 8 sold for of HK$11,240 per sq ft, representing a 22.5%

HK$283.9 million in June 2009, representing increase during the period.

an average unit price of HK$56,000 per sq ft,

which was a record unit price for Hong Kong, On the leasing front, luxury residential rentals

breaking the previous record set in January 2008, in South Side tapered off significantly compared

when a house was sold for an average unit price with the previous quarter. Rentals narrowed from

of HK$55,491 per sq ft (a total consideration of a drop of 5.7% in 2Q2009 to a fall of 0.9% QoQ

HK$240 million). Elsewhere, a house in Skyhigh in 3Q2009, down from HK$37.73 per sq ft per

with a floor area of 7,229 sq ft fetched a total month in May 2009 to HK$37.39 per sq ft per

of HK$300 million, or an average unit price of month in August 2009. Prominent transactions

HK$41,500 per sq ft. Meanwhile, a 4,790 sq ft for the quarter included the lease of a house in

house in The Belvedere was sold for a lump sum Regalia Bay for HK$194,000 per month (a unit

of HK$196.8 million. Based on a total floor rate of HK$46.06 per sq ft per month) and the

area of 4,790 sq ft, the average unit price was lease of a house at Deep Water Bay Road for

HK$41,086 per sq ft. HK$220,000 per month (a unit rate of HK$48.13

per sq ft per month).

10 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

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Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

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COLLIerS INTerNaTIONaL | THe KNOWLeDGe

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Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

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11

HONG KONG || EXECUTIVE SUMMARY | OCTOBER | 2009

RESIDENTIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY || OCTOBER || 2009

MaJOr reSIDeNTIaL LeaSe TraNSaCTIONS

Month Property District GFA Rental Unit Rental

(sq ft) (HK$ / (HK$ / sq ft /

month) month)

Jul-09 pacific place apartments Queensway 2,650 147,200 55.55

Jun-09 May tower Mid-levels 2,850 91,800 32.21

Jun-09 fairlane tower Mid-levels 2,830 98,000 34.63

Jun-09 aigburth Mid-levels 2,650 93,000 35.09

Jun-09 Borrett Mansion Mid-levels 2,800 125,000 44.64

Jul-09 aigburth Mid-levels 3,000 117,000 39.00

aug-09 Highcliff Mid-levels 3,816 145,000 38.00

Jun-09 Hong kong parkview South Side 2,010 100,300 49.90

Jun-09 Hong kong parkview South Side 3,273 135,000 41.25

Jun-09 deep water Bay Road South Side 4,571 220,000 48.13

Jul-09 Headland Road South Side 2,800 110,000 39.29

Jul-09 Bel-air no.8 South Side 2,398 105,000 43.79

Jul-09 Bel-air on the peak South Side 2,438 110,000 45.12

Jul-09 Regalia Bay South Side 4,212 194,000 46.06

aug-09 Hong kong parkview South Side 2,793 97,000 34.73

Source: Colliers International (Hong Kong) Limited

12 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

HONG KONG RESIDENTIAL SECTOR

HONG KONG || EXECUTIVE SUMMARY | OCTOBER | 2009

Mid-levelS two duplex units. The unit size of the duplex

In Mid-levels, the average residential price edged units is about 1,900 sq ft, while the other units Given the sustained buying interest

up 8.5% QoQ from HK$9,060 per sq ft in May measure about 1,250 sq ft. Last but not least, a in the marketplace and expectations

to HK$9,831 per sq ft in August 2009. In the residential project at 9 Seymour Road, developed of further growth on the economic

benchmark development Tregunter, a mid-floor by Wachovia Corporation and USI Holdings front, the sales market is predicted

unit in Tower 3 was sold in June 2009 for a Limited, comprises a total of 82 units.

to pick up additional momentum,

lump sum of HK$32 million, or a unit price of with a further increase of 5%-10%

HK$10,663 per sq ft. Later, in August, a similar SeRviCed apaRtMentS over the next 12 months

unit in the same tower was transacted at HK$39

Against the backdrop of an increasing number of

million, or a unit price of HK$12,996 per sq ft,

newcomers from the non-finance sector, rentals in

displaying a distinct growth of 22% during the

the serviced apartment market were steady during

period.

3Q2009. According to our research, the average

rental rates increased 0.3%QoQ to HK$43.84 per

In the leasing market, the average residential rent

sq ft per month during the three-month period

in Mid-levels rose 2.0% QoQ from HK$33.41 per

ending August 2009. While serviced apartment

sq ft per month in May to HK$34.06 per sq ft per

rents in core locations remained stable at

month in August 2009. Prominent transactions

HK$49.32 per sq ft per month, rentals in non-core

for the quarter included the lease of an apartment

locations experienced a growth of 2.3% QoQ to

in Aigburth for HK$117,000 per month (a unit

HK$35.64 per sq ft per month in 3Q2009. This

rate of HK$39 per sq ft per month) and the lease

was underpinned by serviced apartment units in

of a flat in Borrett Mansion for HK$125,000

decentralised locations that fall into the middle-tier

per month (a unit rate of HK$44.64 per sq ft

group, ranging from HK$20,000 to HK$40,000

per month).

per month, which displayed the strongest growth,

at 5.8% QoQ to HK$37.73 per sq ft per month.

In an attempt to take advantage of the positive

As most companies remained very cautious about

buying sentiment, a number of developers

costs, occupiers chose to relocate to cheaper areas

have pushed forward the schedule of their new

due to tight budgets.

developments for sale in Mid-levels. Property

prices on Hong Kong Island are expected to

capitalise on the rising prices of new launches MaRket oUtlook

in Kowloon. Upcoming new launches include Given the continual restructuring of the finance

Henderson Land’s residential project at 39 industries and the still weak fundamentals of the

Conduit Road, Cheung Kong’s Conduit 18, Hong Kong economy, rentals are unlikely to see

and Wachovia Corporation and USI Holdings significant increases from current levels. Looking

Limited’s development at 9 Seymour Road. The ahead, luxury residential rentals are expected to rise

residential project at 39 Conduit Road, providing about 5% over the next 12 months if companies

66 units with sizes ranging from 2,800-7,600 sq ft, in the private sector become more aggressive

is expected to be launched for sale by Henderson with their business plans in 2010. Given the

Land at an average unit price of HK$35,000 sq sustained buying interest in the marketplace and

ft or above. Meanwhile, Cheung Kong plans to expectations of further growth on the economic

launch Conduit 18, located at 16-18 Conduit front, the sales market is predicted to pick up

Road, on behalf of a US investment fund. The additional momentum, with a further increase

development provides a total of 32 units, including of 5%-10% over the next 12 months.

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 13

RESIDENTIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY || OCTOBER || 2009

CONSeNT TO SeLL reSIDeNTIaL UNITS

District Development No. of Estimated Developer

units completion

June 2009

twtl 410 primrose Hill 548 30-Sep-10 kerry properties

Ytil 38 Rp the Spectacle 185 31-dec-09 Hong kong ferry (Holdings)

Company limited

kil 4022 Rp forfar 43 31-Jul-10 USi Holdings limited

July 2009

tkotl 70 Rp phase iia of lohas park- first phase of le prestige 1,688 30-Jun-10 Cheung kong

Sttl 496 tung lo wan Hill Road, Shatin, new territories 13 30-Sep-09 Sun Hung kai properties

August 2009

nkil 6350 aria 723 31-dec-10 Sun Hung kai properties

tMtl 461 lam tei, tuen Mun, new territories 32 31-dec-09 Sun Hung kai properties

Source: Lands Department, HKSAR Government

14 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

HONG KONG RESIDENTIAL SECTOR

HONG KONG || EXECUTIVE SUMMARY | OCTOBER | 2009

prOJeCTeD NeW SUppLY OF LUXUrY reSIDeNTIaL UNITS IN 2009

Development * House * Apartment Developer / Owner No. of Status

units

Peak

3 Black's link 2 @ 3-s - fortune link development ltd 2 Under Construction

24, 26 & 28 Mount kellett Road 3 @ 3-s - global Success enterprises ltd 3 Completed

South Side

32-34 Stanley village Road 4 @ 3-s - leewall enterprise limited 4 Under Construction

55 Beach Road, Repulse Bay 1 @ 3-s - ocean atlanic group ltd 1 Under Construction

11-12 Headland Road 3 @ 4-s - Henderson land 3 Under Construction

12B Headland Road 1 @ 3-s - Henderson land 1 Completed

14 Headland Road - 1 @ 3-s kadoorie estates ltd 7 Completed

37 island Road 4 @ 3-s - Chuang's Consortium international 4 Completed

Mid-levels

20 tung Shan terrace - 1 @ 4-s anelco ltd 16 Completed

39 Conduit Road - 1 @ 36-s Henderson land 66 Completed

Note: * No. of blocks @ No. of storey Source: Colliers International (Hong Kong) Limited

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 15

INDUSTRIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY| |OCTOBER | | 2009

IndUSTRIAL SECTOR

indUStRial MaRket - keY MaRket indiCatoRS

Rents (HK$ / sq ft / month) Capital Values (HK$ / sq ft) Yields

Aug 08 Aug 09 Aug 10 (f) Aug 08 Aug 09 Aug 10 (f) Aug 08 Aug 09 Aug 10 (f)

Factory 8.12 6.18 6.49 1,611 1,378 1,488 6.0% 5.4% 5.2%

Cargo Lift Access Warehouse 6.64 5.07 5.23 1,763 1,550 1,674 6.2% 5.4% 5.1%

Ramp Access Warehouse 9.50 7.42 7.79 1,990 1,650 1,782 5.8% 5.2% 5.0%

I-O Building 13.47 9.93 10.72 2,901 2,155 2,370 5.6% 5.5% 5.4%

Source: Colliers International (Hong Kong) Limited

Hong kong iMpoRtS and expoRtS

Date Imports YoY Domestic Exports YoY Re-exports YoY

(HK$m) Change (HK$ m) Change (HK$ m) Change

aug-08 260,754 1.5% 8,023 -17.1% 239,850 2.7%

Sep-08 263,235 3.9% 7,853 -20.0% 239,355 4.6%

oct-08 291,204 11.3% 8,060 -23.1% 268,853 10.9%

nov-08 239,305 -7.9% 6,853 -31.5% 224,300 -4.1%

dec-08 217,580 -16.2% 5,540 -39.0% 200,276 -10.3%

Jan-09 180,540 -27.1% 4,196 -50.6% 183,572 -20.7%

feb-09 165,148 -17.5% 3,793 -39.6% 138,144 -22.4%

Mar-09 193,656 -22.7% 4,415 -41.1% 171,057 -20.5%

apr-09 215,398 -17.0% 4,633 -40.2% 194,410 -17.5%

May-09 215,361 -19.2% 5,085 -37.4% 199,290 -13.7%

Jun-09 227,620 -7.9% 4,704 -38.7% 206,432 -4.2%

Jul-09 233,947 -17.8% 5,139 -41.3% 207,140 -19.2%

aug-09 235,150 -9.8% 5,031 -37.3% 208,270 -13.2%

Source: HKSAR Government

exteRnal tRade airfreight throughput declined 8.9% YoY to

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in 3Q2009, the overall volume continued to than that of air cargo during the same period.

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financial crisis in 2008. According to the Hong August 2009, the volume of container throughput

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Kong Trade Development Council, orders for declined 14.6% YoY to 5.6 million TEUs.

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although there was still a contraction of about 15% logiStiCS indUStRieS

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throughput volume in Hong Kong, the demand for

Source: Census and Statistics Department, As of 3Q2009, the total value of re-exports

HKSAR Government logistics warehousing facilities contracted during

continued to contract, but the pace of decline

3Q2009. During the period from January to

showed further signs of tapering off during

August 2009, the volume of total exports declined

3Q2009. During the three-month period ended

17.2% YoY to HK$1,545 billion. Meanwhile, air

August 2009, the total value of re-exports fell 12.6%

cargo and container throughput contracted 16.5%

year-on-year (YoY) to HK$622 billion, compared

YoY and 16.6% YoY to 2.0 million tonnes and

to a decline of 17.1% YoY in the preceding three-

13.7 million TEUs, respectively.

month period.

Individual third-party logistics operators faced

Similarly, the pace of decline of air cargo continued

the challenge of falling utilisation rates in their

to taper off in 3Q2009. During the three-month

warehousing premises. As it was the market

period ended in August 2009, the volume of

16 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

HONG KONG INDUSTRIAL SECTOR

HONG KONG | |EXECUTIVE SUMMARY | OCTOBER | 2009

expectation that the current situation will not SaleS MaRket

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turn around in the short term, the bulk of existing On a positive note, the key highlight of the overall ��

warehousing operators continued to remain industrial property market was the encouraging ��

cautious about costs. For example, individual performance by the sales side of the market ��

operators have started rationalising the use of during 3Q2009. According to our research, in the ��

their premises by closing down some facilities in quarter under review, the number of strata-title

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second-tier locations, such as the northern part sales transactions posted a further growth of 54% ��

of the New Territories, and are focusing on their QoQ to reach the pre-financial tsunami level, at

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premises in such first-tier locations as Kwai Chung about 1,500 transactions in the quarter. In terms

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and Tsuen Wan. As a result, in 3Q2009 the rental of value, the market saw a growth of 67% QoQ to

performance of warehousing premises in prime HK$3,948 million during the same period.

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locations was relatively more resilient than those ��

located in non-core areas. Meanwhile, the number of small-to-medium size ��

Source: Civil Aviation Department,

sales transactions continued to represent the HKSAR Government

Rental weakneSS bulk of the total pie. Sales transactions with a

lump sum consideration of HK$1 million or

Due to the sustained weakness in the external

above represented 70% of the total market during

environment, new leasing demand for industrial

3Q2009 compared with the long-term average of

premises remained scarce during 3Q2009. Similar

44%. As usual, the sub-markets in Kwai Chung/

to logistics operators, cost-sensitive industrial

Tsuen Wan and Kowloon East were the most

tenants determined to reduce their overall

active during 3Q2009 with the total number of

outgoings by downsizing and/or sub-letting a ��

sales transactions there representing more than

portion of their space. As such, industrial rentals ��

50% of the total market.

posted a further consolidation in 3Q2009 in the ��

order of 1% QoQ.

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As at the end of August 2009, factory rentals had In addition, the number of whole-block sales

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month. Rentals for ramp access warehouse space in 3Q2009. One of the key drivers remained ��

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decreased marginally by 0.1% QoQ to HK$7.42 the availability of funds and the support of

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per sq ft per month, while rentals for cargo lift major banks for real estate financing. Individual

access warehouse space were down 1.1% QoQ banks have been offering prospective purchasers ��

to HK$5.07 per sq ft per month. Rentals in the mortgage financing at a loan-to-value ratio as high

industrial-office (I-O) sector declined 1.2% QoQ as 70% of market value. Meanwhile, the relatively ��

Source: Marine Department,

to HK$9.93 per sq ft per month as at August low acquisition cost and management expenses HKSAR Government

2009. have been the other attractions for prospective

buyers, including private investors and genuine

end-users.

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* Three-month ended Source: EPRC

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 17

INDUSTRIAL SECTOR OCTOBER 2009

HONG KONG | EXECUTIVE SUMMARY| |OCTOBER | | 2009

indUStRial tRanSaCtionS pRiCed oveR Hk$100 Million (JUne - aUgUSt 2009)

District Property Price Average Price Purchaser

(HK$ million) (HK$ / sq ft)

kowloon Bay 6 wang kwong Road $280 n/a Billion development

kwun tong Cheung kong electronic Building $178 $1,780 local investor

Yau tong Hung Shing industrial Building $118 $1,815 double Bright ltd

kwai Chung Ryoden industrial Centre $202 $842 Citicall one ltd

kwai Chung Yiu fung Cold Storage $390 $1,283 prime Zone ltd

tsuen wan lung wah international godown $220 $934 everwell inv dev ltd

Shatin power industrial Building $106 $774 first power overseas developments ltd

N/A: Information not available Source: Colliers International (Hong Kong) Limited

The following were the two key whole-block industries. The Chief Executive revealed that the

Although there were signs of industrial transactions registered during government is considering how to expedite the

improvement in 3Q2009, the global 3Q2009. retrofitting or redevelopment of under-utilised

trading environment is yet to fully industrial buildings for use by cultural and creative

• In July 2009, a local investor acquired the industries.

recover to the level before the financial

whole block of the Ryoden Industrial Centre

crisis in 2008

in Kwai Chung for a total consideration of In September 2009, the Secretary for Development

HK$202 million. The deal translated into suggested new policies to revitalise industrial

an average unit price of HK$842 per sq properties in an attempt to support the growth

ft based on a total floor area of 240,000 of the above six industries. Meanwhile, the

sq ft. government has been considering streamlining

the procedures for the usage conversion of existing

• In August 2009, the whole block of the industrial buildings. As the above initiative allows

Cheung Kong Electronic Building in for a wider range of end-users of existing industrial

Kwun Tong was sold to a local investor for properties, the market will see better occupancy for

a total consideration of HK$178 million some of the under-utilised industrial developments

or an average unit price of HK$1,780 per over the medium to long term.

sq ft based on a total floor area of 100,000

sq ft.

MaRket oUtlook

Apart from the above existing premises, individual Looking ahead, the industrial property market

prospective buyers remained keen about acquiring will continue to hinge on the prospective pace

incomplete developments for investment purposes. of recovery of the external trade environment.

For example, an industrialist acquired three strata- Although there were signs of improvement in

titled floors in CEO Tower, an industrial scheme 3Q2009, the global trading environment is yet to

currently under construction in Cheung Sha Wan, fully recover to the level before the financial crisis

for a total consideration of HK$110 million. Based in 2008. Given the projection that there will be a

on a total floor area of 38,141 sq ft, the average mild recovery in 2010, it is our prediction that the

unit price was HK$2,884 per sq ft. rental and capital values of industrial premises will

see a slight rise over the next 12 months.

RevitaliSing indUStRial pRopeRtieS In the factory sector, rentals and prices are expected

With the continued change of market dynamics, to increase by 5% and 8%, respectively. In the

the local government has been playing a key role warehousing sector, prices are expected to increase

in fostering the ongoing transformation of the 8%, while rentals are anticipated to increase 3%

local industrial property market. In June 2009, to 5%, depending on the availability of such

the Task Force on Economic Challenges identified physical provisions as ramp access. In anticipation

six industries for which Hong Kong has an edge of a positive spillover effect from office market,

in terms of development, namely (1) education, rentals and prices in the I-O sector are expected

(2) medical services, (3) testing and certification, to increase 8% and 10%, respectively, over the

(4) environmental industry, (5) innovation next 12 months.

and technology and (6) cultural and creative

18 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

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Jan-2000 = 100

Jan-2000 = 100

Jan-2000 = 100

Jan-2000 = 100

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Warehouse units with direct access to ramp

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Warehouse units accessible by cargo lifts only

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Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

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HONG KONG INDUSTRIAL SECTOR

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COLLIerS INTerNaTIONaL | THe KNOWLeDGe

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Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

Source: Colliers International (Hong Kong) Limited

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19

HONG KONG | |EXECUTIVE SUMMARY | OCTOBER | 2009

RETAIL SECTOR | OCTOBER | 2009

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

�� RETAIL SECTOR

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�� SignS of iMpRoveMent sales market. During the first eight months of

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With an economic recovery in sight, the Hong 2009, total retail sales value decreased by 4.0%

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Kong retail market paints a confident picture of YoY to a total of HK$178 billion.

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�� experienced a slower rate of decline and displayed Looking at the breakdown, supermarket (+4.6%

�� signs of recovery in 2Q2009. The pace of YoY) and food, alcoholic drinks and tobacco

�� contraction in the real GDP narrowed notably (+2.7% YoY) were the key growth areas. Consumer

from a sharp decline of 7.8% year-on-year (YoY) in goods, such as pharmaceuticals and cosmetics

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1Q2009 to a contraction of 3.8% YoY in 2Q2009. (+7.6% YoY), fared well compared with the sharp

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On a quarterly basis, real GDP resumed growth at decline in fuels (-14.3% YoY) and consumer

Source: Census and Statistics Department,

HKSAR Government

3.3% quarter-on-quarter (QoQ) in 2Q2009, after durable goods (-13.2% YoY), such as electronic

registering four consecutive quarters of decline. equipment, and clothing and footwear (-6.2%

YoY). In addition, the food and beverage sector

Meanwhile, local consumer sentiment also showed appeared to be more resilient, as indicated by the

The encouraging signs of recovery, a distinct improvement during 2Q2009. The pace quarterly survey of restaurant receipts revealing

coupled with rising stock and property of reduction in private consumption expenditure that the value of total receipts dropped by just

(PCE) tapered off significantly from a notable 0.7% YoY to HK$19.2 billion in 2Q2009.

prices, helped improve market

decline of 6.0% YoY in 1Q2009 to 1.0% YoY

sentiment. However, the spread of

in 2Q2009. Private consumption had remained viSitoR aRRivalS

the swine flu weighed on inbound relatively resilient since the onset of the global

tourism, which added a certain degree The retail sector was overly pessimistic during the

financial crisis, although there was a short-term

of pressure to the retail sales market first half of 2009, in line with the deterioration

decline, especially in 2Q2009, due to the swine

of the external environment. However, there has

flu. In view of the better-than-expected economic

been a notable rise in retail activity since June 2009

indicators, the Hong Kong SAR Government

when the number of Mainland Chinese visitors

revised its GDP forecast upwards, from a decline

started to pick up and the market began to be more

of 5.5%-6.5% to a contraction of 3.5%-4.5%, for

optimistic in view of signs of economic recovery.

the whole year of 2009.

According to the recent statistics provided by the

Hong Kong Tourism Board, total visitor arrivals

Retail SaleS to Hong Kong recorded a decline of 3.4% YoY

The encouraging signs of recovery, coupled with to 18,909,255 during the first eight months

rising stock and property prices, helped improve of 2009. However, the total number of visitor

market sentiment. However, the spread of the arrivals from Mainland China recorded a positive

swine flu weighed on inbound tourism, which growth of 2.6% YoY to 11.6 million during the

added a certain degree of pressure to the retail same period.

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Source: Hong Kong Tourism Board

20 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

KONG | EXECUTIVE SUMMARY

HONG HONG KONG | RETAIL SECTOR | OCTOBER | 2009

inveStMent deMand per sq ft based on a floor area of 3,000 sq ft.

Against the backdrop of an economic recovery Meanwhile, another ground-floor retail unit (i.e. The leasing market became more

and a low interest rate environment, the number Shop E1) located at 27-33 Nathan Road in Mong optimistic in July and August 2009

of sales transactions in the investment market Kok was sold for a lump sum of HK$106 million. compared with the first half of 2009,

picked up further in 3Q2009. The majority of Given a floor area of 565 sq ft, the average unit as local retailers regained confidence,

buyers were private local investors with an eye on price was HK$187,612 per sq ft. In addition, the

thanks to the encouraging signs of

capital appreciation and G/F shops in traditional acquisition of a portion of the B/F and G/F shop

an economic recovery and a general

shopping districts were favoured. The number of at 72 Nathan Road fetched a total of HK$120

perception of swine flu would only pose

major sales transactions with a lump sum falling million, or an average unit price of HK$63,158

per sq ft based on a floor area of 1,900 sq ft. a short-term impact on the market

in the price bracket of HK$30 million to HK$50

million continued to represent the majority of the In Mong Kok, a shop located on 1/F —2/F at

investments, a significant increase of more than 26-36 Sai Yeung Choi Street South was transacted

50% QoQ in 3Q2009. In general, the initial yield at HK$350 million, representing an average unit

edged down by 20 basis points from 3.7% as of price of HK$33,464 per sq ft based on a floor

May 2009 to 3.5% in August 2009. area of 10,459 sq ft.

In August 2009, Merrill Lynch successfully sold SUB-MaRket analYSiS

a total of three commercial properties, one of

which is a medium-size retail podium located

The leasing market became more optimistic

in a traditional shopping location and targeting in July and August 2009 compared with the

mid-range consumables. The properties were the first half of 2009, as local retailers regained

whole block of Silver Fortune Plaza in Central, a confidence, thanks to the encouraging

90% interest in Golden Plaza in Mong Kok and signs of an economic recovery and a general

the retail podium (G/F-7/F) of the Pakpolee perception of swine flu would only pose a

Commercial Centre in Mong Kong, which was short-term impact on the market. In addition,

sold to a local investor for a total lump sum of the anticipated spending by visitors from

HK$1.59 billion. Mainland China will continue to underpin the

retail sector.

Other prominent transactions in 3Q 2009 were

the acquisition of a ground floor shop at 24 East The recent improvement in local confidence gave

Point Road in Causeway Bay by a Mainland China rise to an increasing number of enquiries as some

investor for a total of HK$100 million. Based on small-to-medium-size local retailers became more

a total floor area of 416 sq ft, the deal represented certain about going ahead with their business

an average unit price of HK$240,385 per sq ft, plans and are currently seeking suitable premises.

achieving a record unit price in the Hong Kong Among the various retail trades, food & beverage

retail market. Elsewhere, a ground-floor shop at is expected to take the lead in growth. However,

13 Pak Sha Road in Causeway Bay was sold to a the business of high-end fashion labels continued

local buyer for a total consideration of HK$160 to face downward pressure. It is our view that

million. Based on a total floor area of 1,000 international retailers will return at a later stage

sq ft, the deal translated into an average unit price when there are further signs of recovery around

of HK$160,000 per sq ft, representing a record the world in 2010.

high for retail property prices at Pak Sha Road.

Meanwhile, a local buyer acquired a 1,228 sq ft G/F The pace of decline in retail rentals began to

shop located at 2 Cannon Street in Causeway Bay

According to our research, average

taper off during 3Q2009, with the bid-ask spread

for a lump sum of HK$236 million, representing between landlords and tenants narrowing further.

retail rentals in the four traditional

an average unit price of HK$192,182 per sq ft. Landlords started to get firm on asking rentals, shopping districts of Central,

but remained accommodating as far as tenants’ Causeway Bay, Mong Kok and

In Kowloon, the sales market was active with fit-out requirements were concerned. Tsim Sha Tsui fell 3.0% QoQ in

a number of quality ground-floor shops being 3Q2009, compared with a drop of

transacted for more than HK$100 million each According to our research, average retail rentals in 4.7% QoQ in 2Q2009

during 3Q 2009. For example, a ground floor the four traditional shopping districts of Central,

shop at 42-44 Granville Road in Tsim Sha Tsui Causeway Bay, Mong Kok and Tsim Sha Tsui fell

was sold for a total consideration of HK$115 3.0% QoQ in 3Q2009, compared with a drop of

million, or an average unit price of HK$38,333 4.7% QoQ in 2Q2009. First-tier streets, such as

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 21

RETAIL SECTOR | OCTOBER | 2009

HONG KONG | EXECUTIVE SUMMARY | OCTOBER | 2009

Russell Street in Causeway Bay and Queen’s Road 29-storey vertical retail complex comprising a total

A mild positive growth is anticipated Central in Central, remained relatively resilient as of 400,000 sq ft, is scheduled for completion by

in the next 6-12 months, but the quality retail units continued to be sought after late 2009/early 2010.

pace of growth will be capped at by retailers that have been confident about their

about 3% long-term business prospects in Hong Kong. In Causeway Bay, average retail rents decreased

2.9% QoQ in August 2009. Notable leasing

Of the four key shopping areas, Central witnessed transactions were highlighted by the lease of a

the smallest decline, with average retail rents falling G/F shop at 22 Russell Street to The Body Shop

by 2.2% QoQ in August 2009. Meanwhile, the for HK$760,000 per month, or a unit rental of

sub-market of Mong Kok recorded the largest HK$950 per sq ft per month based on a floor

drop, with average retail rents decreasing by 3.3% area of 800 sq ft.

QoQ. Elsewhere in Tsim Sha Tsui average retail

rents fell 3.2% QoQ in August 2009.

MaRket oUtlook

On the supply front, Cheung Kong’s 1881 Looking ahead, retail rentals in Hong Kong are

Heritage on Canton Road opened in 3Q2009 and expected to reach bottom over the next 6-12

iSQUARE, a multi-storey retail scheme located in months. A mild positive growth is anticipated

the heart of Tsim Sha Tsui, is scheduled to open during the period, but the pace of growth will

in November 2009. As reported, a total of about be capped at about 3%. However, further rental

60% of the retail space has been pre-committed. growth will materialise if there is a faster-than-

Meanwhile, K11, the so-called “Art Mall”, is also expected rise in consumer prices and wage

due to open in 4Q2009, with a pre-commitment inflation, etc. during the forecast period.

rate of about 70% as of 3Q2009. The One, a

22 COLLIerS INTerNaTIONaL | THe KNOWLeDGe

KONG | EXECUTIVE SUMMARY

HONG HONG KONG | RETAIL SECTOR | OCTOBER | 2009

*reTaIL reNTaL INDeX BY MaJOr DISTrICTS

District Rental Index Rental Index

May-09 Aug-09

Causeway Bay 216 209

% Change (QoQ) -5.2% -2.9%

Central 218 213

% Change (QoQ) -3.6% -2.2%

Mong Kok 169 163

% Change (QoQ) -6.2% -3.3%

Tsim Sha Tsui 251 243

% Change (QoQ) -4.0% -3.2%

Overall 212 205

% Change (QoQ) -4.7% -3.0%

(Nov-2002 = 100) Source: Colliers International (Hong Kong) Limited

* Street-level shops on key street segments

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(Nov-2002 = 100) Source: Colliers International (Hong Kong) Limited (Nov-2002 = 100) Source: Colliers International (Hong Kong) Limited

COLLIerS INTerNaTIONaL | THe KNOWLeDGe 23

THE KNOWLEDGE | OCTOBER | 2009 | HONG KONG

294 offiCeS in 61 CoUntRieS on

6 ContinentS

USa 94

Canada 22

latin america 17

asia pacific 64

eMea 97

Revenue in 2008

over US$1.6 billion

property Management

1.1 billion sq ft

12,700 professionals

CONTaCT INFOrMaTION

Colliers International (Hong Kong) Limited

suite 5701 central Plaza

18 Harbour road, Wanchai

Hong Kong

tel : 852 2828 9888

Fax : 852 2828 9899

company licence no: c-006052

richard Kirke

Managing Director, Hong Kong

tel : 852 2822 0699

Fax : 852 2107 6047

email : richard.Kirke@colliers.com

Simon Lo

Director, research & advisory

tel : 852 2822 0511

Fax : 852 2868 5275

email : simon.lo@colliers.com

the content of this report is for information only and should

not be relied upon as a substitute for professional advice,

which should be sought from colliers international prior to

acting in reliance upon any such information. the opinions,

estimates and information given herein or otherwise in rela-

tion hereto are made by colliers international and affiliated

companies in their best judgement, in the utmost good faith

and are as far as possible based on data or sources which they

believe to be reliable in the contest hereto. notwithstanding,

colliers international and affiliated companies disclaim to the

extent permitted by law, any liability in respect of any claim

which may arise from any errors or omissions or from provid-

ing such advice, opinions, judgement or information.

colliers Macaulay nicolls inc., and certain of its subsidiaries,

is an independently owned and operated business and a

member firm of colliers international Property consultants,

an affiliation of independent companies with over 290 offices

throughout more than 61 countries worldwide

www.colliers.com/hongkong