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Uncertain global outlook keeps Hong Kong property market subdued

But while the office and residential markets recorded low levels of activity, the retail leasing sector continued to outperform as international brands entering and expanding in Hong Kong competed for prime spaces.

The number of residential sales dropped further in January 2012, falling 18.4% month on month to 3,507 in January, the lowest figure since November 2008. Sales of luxury homes valued over HK$10 million fell 17.4% to 385.

In the leasing market, an increasing number of landlords released their flats for lease. However, absorption was weak during the traditional low season. As a result, luxury rents decreased a further 1.3% month on month. Looking ahead, announcements confirming no further regulatory measures in the 2012/2013 Government Budget cleared some uncertainty. Knight Frank believes residential sales volume will rebound in February.

Layoffs threatened a number of financial institutions in Hong Kong, as uncertainty in the global economy started to take its toll. The office leasing market saw only a handful of transactions over the past month.
In Central, a law firm took up a mid floor measuring 5,483 square feet in Prosperity Tower, while a 5,479 square feet low floor in Henley Building was also leased.

Grade A office rents in Hong Kong continued their downward trend, with the average rent dropping 1% in January. Central recorded the biggest correction of 1.9%, followed by Mong Kok/Yau Ma Tei, where rents decreased 1.5%. Hung Hom and Kowloon East, however, saw rents grow 3.2% and 1.2% respectively last month.
Grade A office rents in the CBD are likely to see a 10 to 15% correction in the first half of the year. Meanwhile, asking rents in non-core areas are likely to remain firm, with landlords enjoying low vacancies amid strong relocation demand.

Strong retail sales growth continued last month with a number of shopping centres and high end retailers reporting double digit sales growth during the Chinese New Year period. Many retailers, especially mid market operators who cannot afford sky high rents in prime locations, are expected to move to non core areas or up to higher floors.

Knight Frank expects rents in non-core areas to rise by a moderate 5% this year.