Hong Kong's economic recovery appears to be gaining momentum following the Christmas holiday season, marked by notable shifts in consumer habits and improved business activity across several sectors.
According to consultancy firm Cushman & Wakefield, Grade A office rents have declined by 5.9 percent year-to-date as of mid-November, with projections indicating potential decreases of 7 percent to 9 percent as the market adjusts to increasing supply. Despite this, the fourth quarter saw tenants absorbing 46,000 square feet of additional Grade A office space, leading to positive net absorption for the fifth consecutive quarter, with overall absorption levels reaching over 1 million square feet— the highest since 2019.
John Siu, managing director for Hong Kong at Cushman & Wakefield, explained, "Grade A leasing sentiment will depend on the overall economic recovery and the performance of the local IPO and stock markets, which could support demand from related and downstream industries." Siu warned, though, of the predicted influx of Grade A office supply, which is expected to exceed 3.5 million square feet next year, potentially driving the vacancy rate above 20 percent.
Meanwhile, developments within the retail sector show promising signs. High street vacancy rates have seen significant reductions, dropping to 7.6 percent, with Causeway Bay even reporting 0 percent vacancy for the first time since 2019. Notably, high street rents have increased between 3 percent and 7 percent across various districts, with Central and Tsim Sha Tsui both marking increases of 6.7 percent. Siu noted, "While high street leasing activity has become more active, retailers have remained cautious with their expansion strategies, considering the uncertainty surrounding the changing spending habits of consumers.”
This cautious optimism is underscored by the recent Christmas boost experienced within Hong Kong's hospitality industry. Anthea Cheung So-may, director of the Lan Kwai Fong Association, reported optimism surrounding revenues during the holiday season, with reservations reaching 80 percent. She attributed this boost partly to new multiple entry visa schemes for Shenzhen residents, enabling increased business during the festive season. "This year, we have launched affordable deals to appeal to a broader audience, such as all-you-can-eat meals rarely seen in Central previously. We have observed a change in consumer pattern," Cheung stated.
The culinary offerings of Hong Kong also received attention with the commencement of the 22nd Hong Kong Food Festival, which kicked off on December 27 at the Hong Kong Convention and Exhibition Centre. While the festival opened with lower-than-expected foot traffic, many stall owners remained optimistic, introducing promotional items and diversifying their product ranges to attract visitors. One vendor specializing in frozen seafood expressed concerns over slow sales but remained hopeful as the event continued. Others similarly highlighted the need for more promotions to draw attendees and suggested potential strategies, such as offering free entrance for locals and tourists alike.
There’s collective expectation among industry experts and participants alike for continued growth as Hong Kong navigates its path to recovery amid shifting economic landscapes. The concerted efforts to adapt to changing consumer priorities, evidenced through flexible agreements for office spaces, revitalized retail strategies, and optimized dining experiences, point toward resilience in the face of challenges posed by past economic downturns.
Looking forward, Cushman & Wakefield anticipates residential transactions to rise to 56,000-58,000 units by 2025, aiming for significant consumer recovery as interest rates decline and the market stabilizes. This optimistic perspective, alongside retailers embracing more customer-centric approaches, indicates a persistent drive toward economic resilience and growth.
Overall, Hong Kong's economic activity post-Christmas demonstrates adaptability and cautious optimism, setting the stage for recovery as consumers and businesses recalibrate to meet the new market conditions.
