Concrete Analysis | More than 100 office buildings in Hong Kong need significant upgrades. Here’s why

Covid-19 has disrupted all industries, and real estate is no exception. Trends such as e-commerce, flexible working and wellness have been accelerated, end-user preferences shifted, and supply and demand norms affected – both positively and negatively – depending on asset type.

Office vacancy rates in Hong Kong increased to 8.9 per cent by the end of 2020, with rental rates reducing by 18.9 per cent. While we have seen the pendulum of power swing between landlords and tenants in the past, this time Covid-19 has moved the goalposts from a real estate perspective. The office of the future will need to evolve faster than in previous cycles, if it is to align with the shift in occupier preferences.

An overall net increase in working from home is certain to feature in the new normal for office workers and this is most likely to result in the need for improved space utilisation, and an associated effect on the amount and type of space corporate occupiers will be looking for upon lease expiry. Flexibility of space and lease arrangements will be key.

According to JLL research, over the next three years, with significant new supply coming into the market, rental rates will continue to decline followed by a moderate recovery.

These new buildings are being designed to much higher levels of performance in terms of technology, sustainability and wellness, including contactless entry, vertical transport and washroom facilities together with improved indoor air quality and cleaning regimes. They will also provide significantly improved amenities such as flex spaces, event spaces, green areas and restaurants, all of which will attract tenants from older buildings.

Going forward, as organisations make decisions about the choice of real estate for their businesses and their employees, buildings that do not meet these new expectations will decline in popularity and so too will their comparative value.