Hong Kong’s prime office market takes a breather as banks, other tenants pause after an eight-month leasing spree

The market recorded 96,800 square feet of so-called ‘negative net absorption’ in June, ending an eight-month positive trend driven by quality upgrade, JLL report shows
Vacancy rates in the Wan Chai-Causeway Bay and Tsim Sha Tsui areas both declined, bucking the trend in Central, Kowloon East and Hong Kong East

Office rental

Cheryl Arcibal

Published: 7:30am, 21 Jul 2022

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Hong Kong’s prime office market saw a slower take-up rate in June, halting an eight-month recovery built on quality upgrade after authorities eased pandemic curbs. Cheaper rents are likely to lure more tenants in the coming months.

New supply of grade A office space exceeded demand by 96,800 square feet, or so-called negative net absorption, property consultancy JLL said in its latest monthly report. As a result, the overall vacancy rate rose marginally to 9.4 per cent from 9.3 per cent in May, it added.

The market recorded 1.52 million sq ft in total positive net absorption between October 2021 and May this year, as companies including China Citic Bank, FedEx and flexible office space operator IWG signed up new leases, with the fifth wave of Covid-19 pandemic forcing office landlords to cut rents.

Paul Yien, executive director of office leasing advisory at JLL in Hong Kong. Photo: Handout

“It is normal to see take-up rate under pressure as the leasing market is disrupted by the pandemic,” Paul Yien, executive director of office leasing advisory at JLL in Hong Kong, said in a statement. “There are companies looking to expand in core business districts” given the discounted rents, he added.

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Rents of grade A offices in Central, the city’s main business district, have plunged 28.3 per cent from the peak in 2019 to HK$57.30 (US$7.30) per square foot per month, according to data compiled by JLL. The vacancy rate in the CBD climbed to 7.9 per cent last month from 7.6 per cent in May, the latest report showed.

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Hong Kong’s economy will continue to improve if the city’s Covid-19 situation remains under control, finance chief Paul Chan Mo-po said last month. The job market had stabilised and local inflation risks were low, he added. The local economy shrank 4 per cent in the first quarter, hurt by the fifth wave, travel curbs and tough quarantine rules.

Both the Wan Chai-Causeway Bay and Tsim Sha Tsui office markets bucked the general trend, as their vacancy rates slipped to 9 per cent and 10.2 per cent, respectively, the JLL report showed. However, the former suffered a “relatively larger rental drop” while it was flat in Central, it added.

Hong Kong’s overall office property segment saw an all-time high vacancy rate of 9.8 per cent in September 2021, according to JLL data. However, office vacancy rates in Central, peaked at 8 per cent last December.

One of the transactions in June involved Fubon Life Insurance, which leased 12,350 sq ft of lettable floor area at 12 Taikoo Wan Road in Quarry Bay for relocation and expansion within the same building, according to JLL.

Earlier this year, IWG took up more space at the former Generali building on 8 Queen’s Road East in March. YF Life Insurance signed leases in Grand Century Place and The Gateway in February and FedEx expanded in Landmark East.