Grade-A office rents expected to rise 25pc

PUBLISHED : Wednesday, 15 September, 2010, 12:00am
UPDATED : Wednesday, 15 September, 2010, 12:00am

Limited new supply and strong demand from the financial sector spurred Knight Frank Research to revise up its grade-A office rental growth forecast from 15 to 25 per cent this year.

The agent bumped up its forecast after grade-A office rentals increased last month at the fastest monthly pace since April 2008.

It said the average rent for grade-A offices increased 3.9 per cent last month after 0.3 per cent growth in July. In Central, office rents led the market higher, with a rise of 7.7 per cent. Causeway Bay rents rose 6.3 per cent and the average price in Kowloon East was up 5.9 per cent.

'Considering the stronger-than-expected leasing demand, we have revised our forecast for office rental growth from 15 per cent to 25 per cent this year,' Xavier Wong, director and head of research for Greater China at Knight Frank, said.

Rents are expected to rise next year at the marginally less rapid rate of 20 per cent, Wong said, with the completion of a number of office projects in Central. Those redevelopments include the Dragon Seed Building, Luk Hoi Tung Building and Crocodile House redevelopments. Average grade-A office rents were expected to surpass the previous peak of May 2008 by mid-2012, he said.

A number of financial institutions and professional services companies are scrambling for limited space in key areas. The average vacancy rate on Hong Kong Island fell to 3.1 per cent last month, from 3.5 per cent three months earlier.

'Office availability has been particularly tight in Central, where there is an absence of new supply in 2010 and demand from the financial sector has been strong. We have identified 15 office buildings in Central with near-zero vacancy rates as of August,' he said.

A number of landlords have responded to the positive market conditions by putting their premises on the market.

Last month, a local investor paid HK$280 million, or HK$10,000 per square foot, for Bowa House in Tsim Sha Tsui, while a whole floor in the Bank of America Tower in Admiralty sold for about HK$236 million, or HK$16,980 per sq ft. And an investor bought a whole floor in the Lippo Centre in Admiralty for HK$195 million, or HK$15,213 per sq ft.

After rebounding 76.1 per cent in the past 18 months, the average grade-A office price in the city last month was only 8.8 per cent lower than the 2008 peak.