Office values rise as investor interest grows
Grade-A office prices recovered 12.5 per cent in the first half this year and will rise further in coming months, according to property consultant CB Richard Ellis.
Andrew Ness, director of research for greater China, said investors had entered the sales market, which had bottomed out in the fourth quarter last year.
They had bought prime properties anticipating appreciation gains within the next few years, he said.
Transactional activity in the strata-title Grade-A office market rose during the second quarter following a lull in the first.
CB Richard Ellis said there was growing interest in the acquisition of office property as investment sentiment turned more bullish.
Potential buyers were more active in the market, looking for investment properties, but owners who made acquisitions at previous high price levels were reluctant to sell at prevailing prices.
Prime offices in core Central proved to be popular and sought after by buyers.
Mr Ness said prices there stood at $5,400 per square foot at the end of last month, up 17.4 per cent from the first quarter's $4,600 per sq ft.
Meanwhile, prime Central office rents continued to soften in the second quarter, to $40.25 per sq ft on net floor area, down 9.2 per cent from the first quarter's $44.31 per sq ft, he said.
As a result, investment yields in the core district fell to 4.7 per cent from the first quarter's 5.2 per cent.
Mr Ness said office yields would ease slightly more in the short term. Prices would pick up but rents would continue to consolidate before bottoming out before the end of this year, he said.
CB Richard Ellis said prime office rents across the board dropped a further 6.9 per cent in the second quarter, with average vacancy levels at 12 per cent last month, up 2.8 per cent over the first quarter.
Most of the new office developments to come on stream in the next six months would be held by developers for long-term investment purposes, it predicted.
CB Richard Ellis forecast that prices for the limited stock of grade-A strata-title office buildings would continue to climb due to the increasing number of investors actively seeking prime office investment property.
The less conservative lending policies of banks could also help activate the market with greater availability of credit, it said.
The consultant said vacancy rates for peripheral Central and the decentralised office districts of Hong Kong and Kowloon had shown signs of improvement in the second quarter. It expected the rate of rental decline in these areas to slow.
Core Central vacancy rates were expected to stabilise in the third quarter.