Damo: Office rents in Hong Kong are expected to drop 3% this year, and real estate stocks prefer office buildings over retail

The Zhitong Finance App learned that Morgan Stanley released a research report saying that in Hong Kong real estate stocks, they prefer the office sector over the retail sector. Although the vacancy rate of office buildings is still high, it is improving, and it believes that the Central region will be the first to benefit. Shopping mall rents are still under pressure, mainly affected by online sales and competition in the Shenzhen market. Prefer stocks that have high dividend rates, are sustainable, and have the potential to improve themselves.

In terms of office buildings in Hong Kong, Damo favors Central over non-core areas. Hong Kong Land and Hysan Development (00014) are superior to Wharf Land (01997). On the retail side, mainland luxury retail stocks are preferred over Hong Kong retail stocks. Among them, Hang Lung Properties (00101) is superior to Wharf Land and Link Real Estate Fund (00823); Swire Properties (01972) is superior to Wharf.

Regarding the outlook for office buildings in Hong Kong this year, Tama expects central rents to rise by 3%, and overall office rents are expected to fall by 3%.

Damo still suggests avoiding Jiulongchang property purchases because it faces challenges such as loss of market share and tenant retention risks. For example, Alibaba (09988) will move out of Times Square after acquiring the Causeway Bay Grade A commercial building “Hong Kong Island One Center” in October. Furthermore, the increase in duty-free shopping and inbound travel in the mainland may have an impact on luxury sales in major shopping malls.