Smaller tenants take centre stage
The office leasing market has been dominated recently by smaller tenants on weak sentiment, according to FPDSavills.
The property consultant said the subdued market sentiment was compounded by the seasonal slowdown brought about by the summer holidays. It said most of the transactions recorded were for small units of between 1,000 and 2,000 square feet.
'Earlier this year, relocation to reduce costs was a trend. However, with rapidly falling rents across the board, costs can now hardly be reduced through relocation,'' it said.
According to FPDSavills, grade-A office rents in Central fell 10.4 per cent during the second quarter and were 18.9 per cent down from the end of December last year.
Rents in Wan Chai and Causeway Bay dropped 2.8 per cent in the second quarter and 17.4 per cent in the first half.
In Island East, which is dominated by Swire Properties' Cityplaza and Taikoo Place, rents decreased 10.9 per cent between April and June, or 18.6 per cent in the first six months.
Rents in Tsim Sha Tsui slipped 2.6 per cent in the second quarter and 6.2 per cent in the first half.
FPDSavills said the sluggish stock market, plunging rents and weak fundamentals had discouraged office investment. A handful of deals were recorded last month and most were in secondary areas.
'End-users, who have been supporting the market, became increasingly cautious.
'As the economy is not likely to turn the corner and rents are expected to drop further over the next six months, prices have come under pressure,'' it said.
The consultant estimated grade-A office prices in Central fell 1.8 per cent in the second quarter, or 6.2 per cent in the first half. Those in Wan Chai and Causeway Bay lost 1.5 per cent in the second quarter, or 2 per cent in the first half.
Prices in Island East were unchanged in the second quarter but declined 1.4 per cent in the first six months. Those in Tsim Sha Tsui decreased 2.9 per cent in the second quarter, or 6.2 per cent in the first half.
The weak demand was reflected by increasing vacancy rates. FPDSavills said vacancy rates in Island East rose 2.3 percentage points and those in Tsim Sha Tsui 1.6 percentage points between May and last month.
Vacancy rates in Island East jumped from 8.1 per cent to 10.4 per cent while those in Tsim Sha Tsui increased from 13.7 per cent to 15.3 per cent. Vacancy in Wan Chai and Causeway Bay was steady at 9.1 per cent but the rate in Central grew from 9.6 per cent to 10.6 per cent.