Office rental growth expected to grind to a halt by year end

Consultants see rise in number of companies looking for alternative sites in Kowloon

PUBLISHED : Tuesday, 05 July, 2016, 8:38pm
UPDATED : Thursday, 07 July, 2016, 5:49pm

Leading property consultants expect Hong Kong’s office rental growth cycle to have ground to a halt by the end of the year, with rising availability in Kowloon East prompting more local businesses to relocate from Hong Kong Island to the other side of Victoria Harbour.

Despite strong interest still from mainland corporations, the pace of office rental increases will continue to slow, said John Siu, managing director with commercial real estate agent DTZ/Cushman & Wakefield.

With a gloomy outlook for the Chinese economy and lingering global financial market volatility, industry experts say they have seen a sustained slowdown in leasing demand from the city’s multinationals, with many now adopting a wait-and-see policy.

“Mainland firms are going to be the only drivers of the core office leasing market in Central district in the second half, though that momentum is also weaker than a year ago,” said Marcos Chan, senior director with property consultant CBRE.

Mainland firms are going to be the only drivers of the core office leasing market in Central district in the second half, though that momentum is also weaker than a year ago
Marcos Chan, senior director with property consultant CBRE

His firm now expects overall office rents in Hong Kong to remain flat or lift 5 per cent over the full year, compared with a 2.3 per cent rise during the first six months.

While rental growth in Central may not slip into negative territory anytime soon, Chan said a jump in the amount of office space available in Kowloon would lead to sharper declines in rents there, longer-term.

According to DTZ/Cushman & Wakefield figures, rents in Kowloon East — which fell by 1.8 per cent in the second quarter — have come under pressure because of a large number of leases expiring, and more new office space coming onto the market.

“Rental markets outside of Kowloon East, however, should remain resilient for the remainder of this year owing to the tight vacancy environment,” Denis Ma, head of research at international real estate consultant JLL, said recently.

CBRE’s Chan said thanks to the dropping Kowloon rents, more local small-to-medium businesses may now be looking to relocate there from Hong Kong Island.

David Lam, the owner of consumer electronics firm Air Button Technology, told the Post that his firm had just signed a two-year office lease in Kwai Tsing, and plans to move there from Cyberport, where regular office rents could rise to four times the price of Kwai Tsing.

“Kowloon is undoubtedly a more affordable alternative for us as we don’t see office rents in Hong Kong going down anytime soon,” said Lam.

“Plus, it is convenient in the sense that many of our staff live in Kowloon.”

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