Grade-A office rents in Central are expected to fall by as much as 20 per cent this year as financial-sector tenants relocate to cut costs in reaction to deteriorating business conditions, property consultants say.
Rents started to dip late last year, with average grade-A rents in Central and Admiralty dropping by 1.7 per cent in the last quarter after a decline of 1.5 per cent in the third quarter, Colliers International says.
It expects Grade A office rents in Central to fall by 20 per cent in the next 12 months because financial tenants will find rents less affordable as business conditions deteriorate.
'Given the uncertain external environment, more financial tenants currently located in Central and Admiralty are predicted to relocate to cheaper alternatives in other sub-markets upon their lease expiry, and individual tenants might look to surrender their leases,' Simon Lo, Colliers executive director of research and advisory for Asia, said.
In a quarterly report on the office market, he forecasts the average grade-A office vacancy rate will reach the historical average of 5 per cent in the first half of this year.
The overall net take-up in the grade-A office market fell by 81 per cent quarter-on-quarter to 70,249 square feet in the fourth quarter of last year, mainly due to the weaker global economic outlook, he said.
However, vacancy rates in Island East, Tsim Sha Tsui, and Kowloon East improved because tenants were relocating to areas where rents were lower than in Central, Lo said. In Tsim Sha Tsui the vacancy rate improved from 2.6 per cent in the third quarter, to 1.9 per cent in the final quarter.
John Siu, executive director of property consultant Cushman & Wakefield, expects grade-A office rents in Central to fall by 5 per cent to 10 per cent in the first half of this year. 'We will see a moderate correction. Unlike financial companies, firms involving in pharmaceuticals and trading stick with expansion plans and will not scale back their demand for office space,' Siu said.
David Ji, head of research for DTZ in greater China, predicted that grade-A office rents would drop by between 5 per cent and 10 per cent in the first half of the year.
Still, Ji said tight supply and the lack of new developments coming onto the market would balance out any negative impact from Europe, and Central's office rents would see only modest falls.
Colliers forecasts grade-A rents will fall by 8 per cent over 12 months.