Hong Kong government departments take advantage of falling rents to lease more office space in Kowloon
- The Transport Department recently signed a lease in Kowloon, while the Lands Department is looking additional office space, according to Knight Frank
- With more companies starting to expand amid an improving economy, the city’s grade A office market recorded its first net absorption since July 2019, JLL said
The Hong Kong government is taking advantage of the drop in office rents to seek additional space for some departments, joining private companies looking to expand amid an improving economy.
In May, office rents in Kowloon East fell 9.3 per cent year on year to HK$26.9 per square foot per month, while in Central they dropped 12.9 per cent to HK$111.8 per square foot compared to a year ago, the latest data from Knight Frank showed.
“They are mainly looking for space in Kowloon where rents are about a quarter of those on Hong Kong Island,” said Martin Wong, director and head of research and consultancy for Greater China at Knight Frank.
In the past year, the Government Property Agency, which rents and allocates office space to various departments among other activities, has leased 100,000 sq ft at Skyline Tower to accommodate the back up offices of the Social Welfare Department, Immigration Department, Drainage Services Department and Audit Commission.
“The government’s move indicates rents in Kowloon East have dropped substantially,” said Paul Yien, senior director of office leasing advisory at JLL Hong Kong.
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Overall grade A office rents in Hong Kong have fallen about 27 per cent from the peak in June 2019, when they started their downward spiral amid the anti-government protests followed by the Covid-19 pandemic, according to JLL. Local and multinational firms opted for downsizing or implemented work-from-home arrangements to contain costs amid tougher operating conditions.
Yien said the rate of decline in rents has narrowed since early this year, and expects overall rents to fall by five to 10 per cent this year, compared to the 18.9 per cent plunge in 2020.
For the first five months this year, office rents have declined 4.1 per cent, JLL said. With more companies starting to expand, the property consultancy said the city’s grade A office market recorded its first net absorption since July 2019.
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With business confidence building up in Hong Kong in recent months, companies have started reassessing their real estate needs, said Alex Barnes, head of agency leasing at JLL Hong Kong.
“We believe that the worst period for the office leasing market has passed and rental fall will moderate in the second half of the year for most core markets,” he said.