Desperate landlords offer renovation subsidies to lure tenants as Hong Kong’s vacant office space hits 21-year high

Some landlords have begun offering a one-off subsidy to help new tenants fit out their office space, according to CBRE

The property services company says 7.8 million sq ft of office space – about the size of four Central Plazas – sat vacant in Hong Kong in September, the highest since 1999

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The amount of office space lying empty reached the highest level in 21 years in September, according to property services company CBRE. Photo: K Y Cheng

Published: 8:30am, 8 Oct 2020Updated: 10:58pm, 8 Oct 2020

Hong Kong’s commercial landlords are offering incentives such as renovation subsidies to lure tenants, as the amount of office space lying empty reaches the highest level in 21 years, according to property services company CBRE.

Some landlords have begun offering a one-off subsidy to help new tenants fit out their office space, said Alan Lok, executive director of advisory and transaction services for offices at CBRE.

“In some cases, the landlord would offer a subsidy of about HK$100 (US$12.9) per square foot,” said Lok during a briefing on Wednesday.

The subsidy is attractive because relocation costs in Hong Kong are very expensive, he said. For a prime renovation costing HK$1,000 per sq ft, the relocation cost may add up to HK$1,200 per sq ft after including the price of returning the office to its original state when the lease ends. The cost can be spread out to a monthly HK$30 per sq ft or thereabouts over three years.

“For most relocations with cutting costs as the objective, it takes a place with a rent of HK$30 per square foot less than” the original rent to justify the move, said Lok. “Some offices do not have their head offices in Hong Kong. It is not that easy to approve that sum [for renovation].”

According to CBRE, 7.8 million sq ft of office space – greater than the size of four Central Plazas – sat vacant in Hong Kong in September, the highest since 1999. An additional 950,000 sq ft of surrendered space – returned by tenants before the lease expires – is available in the market, just shy of the size of the HSBC building.

Desperate landlords have been offering a broader range of incentives in lieu of rental discounts, to try to fill the space.