Office rents in Hong Kong’s Central district – world’s most expensive commercial property market – to plunge by up to 40 per cent, real estate fund says

The phase one trade deal between Washington and Beijing will not improve the situation, London-based Nuveen Real Estate says

Decline in rents to put pressure on sale prices of commercial real estate as well

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Overall take-up of office space in Hong Kong’s Central district is likely to stay soft, driving rents lower, London-based real estate investment manager Nuveen Real Estate says. Photo: Roy Issa

Published: 7:45am, 17 Jan 2020Updated: 10:50pm, 17 Jan 2020

Office rents in Hong Kong’s Central district, the world’s most expensive commercial property market for a fourth straight year in 2019, might plunge by up to 40 per cent by 2022, according to the most pessimistic forecast yet.

“Office rents in Central and other mature decentralised areas are likely to continue falling – by around 30 per cent to 40 per cent over the near to medium term” in the next two to three years, said Harry Tan, head of research for Asia-Pacific at London-based real estate investment manager Nuveen Real Estate. “Central office rents have started to decline given the recent weak sentiment, and this will persist, especially as businesses readjust their expectations of Hong Kong’s long-term outlook, and [reassess] the need to diversify away from the city.”

The Nuveen forecast was the most pessimistic in an industry gripped by gloom, as seven months of unprecedented political crisis have sent Hong Kong’s economy into its first technical recession in a decade. Commercial property rents and purchase prices might drop by 10 per cent on average this year, according to a survey by South China Morning Post of 10 property analysts. JLL, the world’s second-largest commercial real-estate services firm, expected rent and prices to drop by 20 per cent.

The US-China trade war has added to Hong Kong’s woes, as global trading companies and providers of professional services deferred their expansion plans, crimping demand for additional office space. Mainland Chinese companies, in particular, have been noticeably reticent about paying top dollar for marquee office addresses in Central, analysts said.

“Improving but ongoing political tensions will weigh on economic growth and business sentiment and spending,” Tan said. “The slowdown in mainland Chinese occupier demand will also lower rents, particularly in Central. Central offices will also continue to face the decentralisation pressure of businesses relocating. Overall take-up is likely to stay soft, driving rents lower.”

The phase one trade deal between Washington and Beijing, which will ease trade tensions between the world’s two largest economies, will not improve the situation.

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