Grade-A office rents in Central are likely to fall by 10 to 15 per cent in the first half of the year amid shrinking demand from the business sector and growing competition from landlords in less central areas, according to property consultant Knight Frank.
As tenants are inclined to relocate to cheaper locations, rents in non-core districts such as Causeway Bay, Quarry Bay and Wan Chai could rise by up to 5 per cent over the period, it said.
'Hong Kong's open economy means the city is exposed to the headwind of the global economy. With the external environment worsening in the European Union and US, the local corporate sector will become increasingly cost-sensitive and more companies will seek to decentralise to cut rental costs,' the property consultant said in its latest research report.
As a result of this trend, it expects to see strong office relocation activity from Central to secondary business districts in 2012.
Early evidence of this trend emerged in the divergent performances of core and non-core rents in December, Knight Frank said.
While Central and Admiralty saw rents slip 5 per cent and 2.3 per cent year on year respectively, rents in Causeway Bay, Wan Chai and East Kowloon remained firm during the month.
With shrinking business demand, Knight Frank said landlords in core areas would show greater flexibility on rents in the coming months. Those in non-core areas, meanwhile, are likely to remain firm on rents amid rising relocation demand.
In order to retain tenants, some landlords in these areas have demonstrated greater flexibility in the negotiation of lease terms.
The property consultant also expects to see a fall in luxury home prices and rents as a result of global economic uncertainties, but the retail sector will be a bright spot. Though average prime retail rents will grow at a slower pace of about 10 per cent this year, they will outperform all other sectors.
'As Hong Kong remains a shopping paradise for mainlanders, with lower prices and wider product choices, global retailers will continue to look for opportunities to expand in Hong Kong, which will provide firm support to retail rents in prime areas,' the report said.
The year-on-year drop in average office rent in Central in December
-The corresponding figure for Admiralty was 2.3 per cent