Hong Kong property

Demand for prime office space in Hong Kong to cool further as trade war weighs on companies

  • Analyst sees 3.9 per cent decline in Central office rents in 2019
  • Other business districts to see modest growth of 1-3 per cent
PUBLISHED : Thursday, 20 December, 2018, 9:06am
UPDATED : Thursday, 20 December, 2018, 11:00pm

Rising interest rates and lingering uncertainty over the US-China trade war are denting demand for prime office space in Hong Kong, with rents likely to fall in Central, the world’s most expensive office district next year, as businesses feel their impact, analysts said.

“Investment volumes remained subdued amid ongoing economic uncertainty and the potential for further interest rate hikes,” said Denis Ma, head of research at JLL. “With the yield expectations of buyers rising and vendors remaining firm on asking prices, this trend will continue in the short-run.”

Nearly 60,000 square feet of grade A office space was added to the market in November as demand failed to keep up with expiring leases, according to property consultants JLL. Overall vacancy in five business districts of Hong Kong rose slightly to 4.1 per cent from 4 per cent from October.

The Wan Chai/Causeway Bay district recorded a vacancy rate of 1.8 per cent in November from 1.7 per cent the previous month. Despite this, the district posted the fastest growth in rents, up 7 per cent on month owing to the relocation of tenants from Central.

“Rents growth in the overall market continued to rise albeit at a slower pace, up by 0.3 per cent month on month,” said Alex Barnes, head of markets at JLL.

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The vacancy rate in Tsim Sha Tsui, however, fell to 1.4 per cent from 1.6 per cent in the same period, while it remained unchanged at 9.4 per cent in Kowloon East.

Knight Frank’s monthly report also found that the trade war has had a visible impact on leasing activity in Kowloon.

Chris Currie, executive director and head of Hong Kong office services at Colliers International, said the trend will persist in 2019 as mainland companies take a pause in their expansion plans as result of the US-China trade war.

“You have a lag of six to nine months, and the [trade war] bite is starting to kick in,” Currie said.

He estimated that rents in Central – the world’s most expensive office district – could decline 3.9 per cent, but see modest growth of between 1 per cent and 3 per cent in other areas.

Currie said that with many three-year lease cycles up for renewal in 2019, companies could see an increase of as much as 20 per cent from their present rates.

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Knight Frank said that rents in Central will continue to be under pressure as leasing activity remains restrained.