HONG KONG: Office sales are showing signs of improving, with more than 260 deals recorded last month, the highest level since August last year.

And following the strong start to sales so far this year, the outlook for further growth is positive, according to property consultancy Knight Frank.

Buoyed by the economic recovery now under way and a low interest rate environment, February transactions were 10% higher than the previous month, according to Knight Frank's latest research report.

Hong Kong's economy showed further signs of recovery in the past month, benefiting from a revival in regional trade, improving job security and robust capital market activity, it said. Meanwhile, the unemployment rate dropped to 4.6% in the three months to February from a peak of 5.4% last year.

Sales activity last month was particularly strong in Admiralty and Sheung Wan, the report said, while large-scale deals were also seen in non-core areas.

In line with robust sales, the average grade A office price increased 3.9% last month, after growing just 2.7% in the previous three months.

Sheung Wan saw the greatest price gain -- 6.3% -- thanks to transactions including the sale of three units on the 31st floor of Shun Tak Centre for HK$78 million (RM33.34), or HK$14,905 per sq foot -- the highest square foot price in the building since 1997.

Admiralty saw prices rise 5.3% over the month, amid thriving sales in the district.

The economic recovery also benefited the office leasing market, with demand continuing to pick up. Office rents last month rose 2.3%. Hung Hom saw the largest rent jump -- 8.1% -- as the landlord of a key building in the district raised its asking rents by 10%.

Grade A office rents grew 3.8% over the past month.

"Landlords in Central have benefited the most from the recent revival in the office leasing market," the report said.

By the end of last month, rents in top quality properties in Central had rebounded 25.4% from their 2009 trough, while those in traditional Central climbed 9.2% after bottoming in August last year.

Hong Kong's economic recovery now looked likely to extend from the financial sector to the trade and services sectors, the report said, and the outlook for the office market was therefore positive.

This year, it is estimated that the Hong Kong economy will see 4.5% growth and unemployment will be down at 4%.

An accountancy firm expects funds raised from initial public offerings in the stock market to reach HK$370 billion this year, a 51.8% growth from last year.

"In line with this, the grade A office market is likely to see further rent growth in non-core areas, following strong rent growth in the [Central business district] driven by vigorous demand from financial institutions," it said.

Over the next 12 months, the office vacancy rate on Hong Kong Island is expected to drop further, giving landlords the upper hand in rent negotiations. – South China Morning Post

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