Prime office rents fall in Central
Weakening demand from the banking and finance sectors, coupled with a rise in secondary space returning to the market, pulled down prime office rents in Central in the third quarter, property consultants say.
And they expect rents there will continue to fall in the next 12 months.
Prime office rents in Central in the third quarter fell 3.8 per cent quarter on quarter to an average of HK$148 per square foot, the property consultant said in its latest report released yesterday.
Weakened sentiment resulted in some landlords lowering their rental expectations, said CB Richard Ellis. This was particularly evident in Central, with factors such as a slowdown in demand from the banking and finance sectors.
Financial institutions such as HSBC, Bank of America and Barclays all announced plans to reduce staff worldwide. The largest impact locally will be HSBC's decision to reduce staff numbers in Hong Kong by 3,000 over the next three years.
'The banking and finance sectors are a leading indicator of the broader economy, and if global economic growth continues to weaken then more occupiers across various industry sectors will likely look to reduce operating overheads, a large proportion of which will include lowering real estate occupancy costs either by seeking out more cost-effective premises or reducing their real estate footprint in Hong Kong,' it said.
Another property consultant, Colliers International, predicted that rents in Central would fall by 8 per cent in the next 12 months.
Subject to uncertainties in the financial sector, office tenants, particularly those engaged in banking and finance, were expected to be more cautious, Colliers said.
In the face of the fragile economic recovery in the US and the lingering sovereign debt crisis in the euro zone, several multinational corporations temporarily shelved their expansion plans, while a number of landlords became more flexible in rental negotiations, Simon Lo Wing-fai, executive director of research and advisory, Asia, at Colliers, said.
Some companies have also moved to cheaper premises. If the external economic environment deteriorated further, more non-financial companies were likely to move to cheaper offices or to consolidate offices, Colliers said.
The agency said office rents outside Central fell 1.5 per cent from the second quarter; rents had risen 2.9 per cent from the first quarter to the second quarter.
Rents in other business districts remained relatively firm because of relocations and demand from medium-size companies for higher-grade office space.
However, Colliers said that, based on previous cycles, the entire market could be expected to enter a period of consolidation if Central rents were falling.
During the consolidation which took place between 2001 and 2003, overall office rents fell 40 per cent. The most recent consolidation came in 2008-09.
In the next two years, the average level of new supply would stay significantly below the long-term average. The supply situation might help slow the pace of a market downturn, Colliers said.
The amount by which overall office rents fell during the most recent market consolidation in 2008-09