The office market in Hong Kong will continue to be disrupted by the work-from-home trend this year as the coronavirus pandemic rages on, a UBS real estate analyst said. With new office supply coming on to the market this year, more multinational firms may take the opportunity to consolidate their office needs and revisit their real estate strategy. “We generally believe the trend of work-from-home will be a long-term negative to the sector”, which could lead to rising office vacancies as new buildings are completed, Mark Leung, associate director of Hong Kong and China real estate research at UBS, said in a Spotify podcast. “We believe work-from-home will continue to be widely implemented among foreign enterprises,” said Leung. “However, local and Chinese firms remain reluctant to adopt flexible working initiatives due to cultural differences.” In the past, flexible working was not that common in Hong Kong because of the small living space constraints in the city. However, after the outbreak of Covid-19, the work-from-home trend accelerated to contain the spread of the disease. Hong Kong is currently battling the fifth wave of the coronavirus outbreak. The rising number of untraceable Covid-19 cases will prevent any easing of social-distancing curbs when they are due to expire later this month and more workers will need to be ordered to work from home to reduce social interactions. Real estate consultancy Colliers estimates some 4.6 million square feet of new grade A office supply will be completed in Hong Kong this year, the most since 6.8 million sq ft came online in 1998. However, most of the new supply will be in noncore areas, such as Kowloon East and Island East, while a quarter will be in the New Territories. “We are also concerned [about] the long-term rent and capital value for the sector due to oversupply,” Leung said. He said that an additional 17 per cent of new office space will come on stream in the next five to eight years, which may need over 10 years to be fully absorbed. Leung also noted that Chinese companies, which used to account for 30 per cent of the leasing market in Central, the city’s main central business district, before the outbreak of the pandemic, has now been reduced to 21 per cent. “We believe more multinational firms may take the opportunity to consolidate their office and adopt an agile working strategy,” Leung said. He added that the ongoing outflow of foreign expats because of the lack of visibility on the reopening of Hong Kong’s border to international travellers will also put pressure on the office leasing demand going forward. UBS expects rent, cap rates and capital values to remain largely flat this year. Colliers, meanwhile, expects the city’s grade A office market in Hong Kong to remain a tenant’s market, with overall rents likely to rise by around 1 per cent this year. The consultancy expects core area rents to continue to outperform, with rents likely to increase by 4 per cent on the back of improving leasing sentiment and lack of new supply. However, areas with high existing vacancy and new supply, such as Kowloon East and Island East, were likely to face downward pressure on rents. Colliers forecast rents to fall by 2.5 per cent in Kowloon East and by 3 per cent in Island East. Office rents have slumped by 27 per cent from their peak to late 2021, according to Morgan Stanley.