Sluggish Hong Kong office-rental market shows signs of bottoming out as enquiries pick up, analysts foresee rising rents
- Rents are expected to edge up by the end of the year, according to market players
- The office vacancy rate stood at 14.4 per cent last year, the highest since 1998
Hong Kong’s depressed office-rental market is showing signs of bottoming out, with agents fielding more leasing enquiries and rents expected to edge up by the end of the year, according to market players.
The reopening of the border with mainland China has resulted in a significant increase in enquiries, according to Hongkong Land, Central’s biggest landlord.
“Leasing has been quite active recently,” agreed Fiona Ngan, head of office services at Colliers. “Landlords have greater confidence and are panicking less.”
At the beginning of the year, the market was still difficult “since we needed to recoup previous losses in the last three years of the pandemic”, Ngan added. “Market sentiment should improve at year’s end.”
In the last three years, overall office rents have sunk 22 per cent, she said, adding that the decline has slowed this year, with rents dipping 0.8 per cent overall as of late March. Rents may edge up about 3 per cent this year, she added.
Hong Kong’s overall office vacancy rate stood at 14.4 per cent last year, the highest since 1998, according to the Hong Kong Property Review 2023 published by the Rating and Valuation Department on Friday. In Kowloon East, vacancy rate amounts to as much as 20 per cent, though rents edged up in the fourth quarter, said Colliers’ Ngan.
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For 2022 as a whole, real gross domestic product (GDP) contracted by 3.5 per cent. Looking ahead, the Hong Kong economy is expected to stage a rebound in 2023, with real GDP forecast to grow by 3.5 to 5.5 per cent, according to the government.
Consultancy Knight Frank echoed Ngan’s view, finding in a report that the Hong Kong office market saw stronger activity in February as market sentiment improved in tandem with the revival of economic activity, though rents still dipped.
Companies from multiple sectors took advantage of the favourable market for tenants in February to consolidate and upgrade their office space. For example, Canadian pension fund CPPIB leased two floors in Henderson Land’s new and as yet incomplete 36-floor The Henderson, in a consolidation from York House, Knight Frank said.
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An unnamed beverage company is also relocating from Exchange Tower in Kowloon Bay to The Henderson, and luxury brand Hermes is relocating its office with an upgrade and consolidation from Chinachem Leighton Plaza to Lee Garden One, Knight Frank added.
Increasing demand for small and medium-sized space continues to favour the co-working sector, fuelling expansion, the consultancy said.
“If you go back over the last three years, we had certain months that were pretty grim,” said Neil Anderson, director and head of office, commercial property at Hongkong Land, which has 4.9 million sq ft of commercial real estate in Central. “It’s fair to say we’re talking single digits. I think there was one month where we had eight introductions in terms of the demand for office space – pretty lacklustre.”
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Leasing enquiries then rose to 21 in January, 39 in February and 46 as of March 28, he said last week at an event hosted by the landlord.
“Forty-six is very high,” Anderson said. “We’re not going to be doing deals with every single inquiry – that’s just the nature of the business. But in terms of the level of demand, and how busy we are as a business, that does kind of tell you that things are looking a lot more optimistic and healthy. Transaction volumes will come later.”
Companies from mainland China are also on the market for deals, according to an analyst. Companies including Huawei Technologies and Huatai Financial have leased office space in Central, said Rosanna Tang, head of business development services at Cushman & Wakefield.
