Office rents in Central dropped 6.3 per cent in the first quarter from the final quarter of last year, as big financial institutions disposed of some of their space, according to property consultancy Jones Lang LaSalle.
'Demand for office space in Central was driven mainly by small-scale expansions and new set-ups from the legal and finance sectors, with requirements of typically 5,000 square feet or less,' said Ben Dickinson, Jones Lang LaSalle regional director and head of tenant representation.
By contrast, demand for top-quality grade A offices remained relatively weak, as larger financial sector tenants disposed of some space in the first quarter to reduce occupancy costs, Dickinson said. 'This decrease in demand explains why rentals in Central dropped 6.3 per cent in the first quarter of 2012,' he said.
Jones Lang LaSalle said more stock would come to the market from the banking and finance sectors, with occupiers in the field adopting a 'wait-and-see' approach. On the other hand, tenants from the legal, information technology and retail sectors, as well as small hedge funds, could continue to seek quality office space at affordable prices.
Another property consultancy, Knight Frank, expects a 10 to 15 per cent correction in grade-A office rents in Central in the first half of the year.
The overall office vacancy rate reached 3.8 per cent last month, still below the 4 per cent recorded when the market peaked in April 2008, according to Jones Lang LaSalle.
The consultancy said in its report that the office market registered a positive net take-up of 697,100 square feet in the three months to the end of March. But this was largely inflated by realisation of pre-committed space in the newly completed Hysan Place, Causeway Bay and 55 King Yip Street, Kwun Tong, and the en-bloc purchase of 18 Kowloon East by China Construction Bank, which is understood to be mostly for self- occupation.
In Central, while there is less floor space under lease or occupied than late last year, the vacancy rate remains below 5 per cent - very tight by international standards, Jones Lang LaSalle said.