Rise seen in grade A HK office rents
Hongkong Land, the largest landlord in Central, expects grade A office rents to rise in line with current market rates this year as older leases become due for renewal.
John Witt, the firm's chief financial officer, forecasts grade A office rental reversions to remain positive, meaning rents will revert to present market levels, because of the low vacancy rates.
That's despite the broader decline of the office rental market, with global economic uncertainties seen to reduce demand this year.
'If we look generally, the vacancy rate of grade A offices in Central is 4 per cent only,' said Witt. 'The new supply of grade A offices in Central over the next three years is less than 100,000 sq ft each year. The supply is very tight, particularly in Central.'
Witt said the shortage of office space should support the market, although some analysts have voiced concerns that office rents may come under pressure as they did in the wake of the 2008 global financial crisis.
Last year, the firm's office portfolio in Hong Kong gained from positive rental reversions, particularly in the second half. Its average office rent rose 3.2 per cent to HK$87 per sq ft last year, from HK$84.3 per sq ft in 2010.
Rental occupancy also hit a record, surpassing the previous peak set in mid-2008. The vacancy rate at the end of last year was 2 per cent, down from 2.9 per cent in 2010. Hongkong Land also released its earnings results yesterday. It said underlying profit fell 13 per cent last year to US$703 million, from US$810 million in 2010.
The firm said that was because it had completed only one residential project, Peak@Balmeg, in Singapore last year, compared with three in 2010.
Revenue dropped 8.7 per cent to US$1.22 billion. Income from investment properties increased 2.7 per cent to US$700.3 million, while income from property sales slumped 25.89 per cent to US$412.5 million.
Simon Keswick, Hongkong Land's chairman, said general economic uncertainty was likely to have an adverse influence on business.
He said the firm also had only one residential project scheduled for completion this year, and that mainland property sales might be more challenging. However, its commercial portfolio should continue to gain from the tight supply, he said.
Chief executive Pang Yiu-kai said this year's financial performance would continue to be affected by lower residential profits due to the scheduled timing of project completions. But residential profits should rebound next year when four Singapore projects were due for completion, he said.
Over in the retail sector, Witt said average rents for the firm's retail properties in Hong Kong rose to HK$148.3 per sq ft last year, up 8 per cent from 2010.
And on the mainland, the firm bought a 52-hectare site in Chongqing for US$600 million in December last year.
The amount, in sq ft, of prime office and retail space that Hongkong Land owns and manages in the Central business district