Central, Admiralty feel full impact of rents dip
Grade-A office rents have fallen 9 per cent since February, according to Colliers Jardine.
Central and Admiralty rents recorded a faster rate of decline - more than 10 per cent - due to the contraction of the rental premium against other districts.
Also, decentralised grade-A office buildings were slower growing than the central business district and so suffered less in the falls, Colliers Jardine said.
It was likely the trend would continue for 12 months, especially before the full completion of the two major Central office developments - 11 Chater Road and Two International Finance Centre - providing a total gross floor area of more than 2.4 million square feet.
Corporate downsizings in the first half of this year were triggered by the dip in the United States economy.
A lack of new supply meant activity had been sluggish in the primary market and, coupled with a sharp fall in new demand, the office leasing market had seen a dearth of leasing transactions.
With a lack of new demand, new space would be filled principally by relocations, further increasing secondary-market vacancies, Colliers Jardine said.
Existing tenants, expecting a further decline in rentals, would be tempted to relocate to cheaper offices and landlords might be forced to offer attractive terms to retain them.
Colliers Jardine expects the downturn to end when the major new developments are completed in 2003.
Meanwhile, Chesterton Petty said there had been an increase in lease surrenders in July as a result of continuing failures in the dotcom sector. Central and Wan Chai led other business areas with potential surrendered space of 60,000 sq ft and 40,000 sq ft respectively.
However, the overall office sales market was more robust, with improved sentiment, mainly for grade-B office buildings. Eight grade-B buildings, with a total value of HK$3 billion, were sold in July.
Yields on prime grade-A properties fell slightly to between 4 per cent and 5 per cent, while grade-B properties still enjoyed higher yields of 7 per cent to 9 per cent, according to Chesterton Petty. It expected leasing to remain at the present level in the next few months, and office rentals to fall at a slower pace for the rest of the year.
Meanwhile, FPDSavills said Kowloon's July office leasing market, especially in Tsim Sha Tsui, was more active than Hong Kong Island.