Hong Kong’s grade A office rents to fall further, with mainland China demand below pre-pandemic levels, new supply coming online, analysts say

The office market is under strain from weakening capital market activity and less leasing demand from mainland firms, S&P says

Overall grade A office rents dropped further in January: JLL executive

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Commercial buildings in Hong Kong’s Central district. Rents in Central and Hong Kong East dropped in January by a further 1.2 per cent and 0.9 per cent, respectively, JLL says. Photo: Yik Yeung-man

Published: 8:30am, 28 Feb 2024

Hong Kong’s grade A office rents will decline by another 5 per cent this year, as demand from mainland China-based companies has yet to return to pre-pandemic levels and vacancy rates remain high due to new completions, analysts said.

The decline will add to a 6.5 per cent drop recorded last year, S&P Global Ratings said.

“Hong Kong’s office markets are under strain from weakening capital market activities in the city and less leasing demand from mainland China companies,” the ratings agency said in a report on Monday.

The S&P forecast comes after the overall vacancy rate for grade A offices in Hong Kong rose to 12.9 per cent as of January end – it stood at 12.8 per cent in December 2023 – driven by new completions, according to JLL. The vacancy rate in Central rose to 10.4 per cent in January from 9.9 per cent a month earlier.

“Overall net effective rents of grade A offices dropped further by 0.6 per cent month on month in January, ” Cathie Chung, senior director of research at JLL, said in a report on Tuesday. “Rents in Central and Hong Kong East dropped further by 1.2 per cent and 0.9 per cent, respectively.”

Chinese firms accounted for just 10 per cent of new leasing activity in 2023, down from 15 per cent to 20 per cent in 2019, according to CBRE, another property consultant. Five new office buildings are scheduled for completion this year, and overall vacancy is forecast to rise above 17 per cent by the end of 2024.