The View | In Hong Kong’s Central, the world’s most costly office market, landlords might have to come down to Earth

Sky-high rents, ageing building stock and a shake-out in the co-working sector have dimmed the attraction of Central, Admiralty and Sheung Wan for office tenants

Meanwhile, Kowloon accounted for a sizeable chunk of leasing volume in the last quarter

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Artist Viktor Vicsek’s work Talking Heads is displayed at the Central harbourfront to the backdrop of skyscrapers in Hong Kong’s financial district in February. Take-up of office space in Central contracted quarter-on-quarter. Photo: Winson Wong

Published: 2:04pm, 29 Apr 2019Updated: 10:17pm, 29 Apr 2019

Hong Kong’s Central district, the world’s most expensive office market, is starting to feel the strain.

As demand for Grade A office space from mainland companies – which have historically been willing to pay above-market rental rates to be based in the city’s prestigious financial district – slows sharply, leasing activity has taken a severe knock.

According to a report from property adviser CBRE, published earlier this month, the net absorption of office space – the difference between tenant move-ins and move-outs over a given period – in Central in the first quarter of this year contracted by 38,000 square feet quarter-on-quarter. In Greater Central, which includes the Admiralty and Sheung Wan districts, leasing demand from mainland firms fell by nearly 50 per cent quarter-on-quarter to 62,200 square feet, amounting to 17 per cent of Chinese companies’ leasing activity in Greater Central for the whole 2018.

The significant softening in demand from mainland occupiers – which, according to Savills, another real estate adviser, are “the bloodline of the Grade A office market in Central” – comes amid a shake-out in the popular co-working sector that has forced many operators to pull out of leasing transactions, crimping demand further.

Reuters reported on April 17 that WeWork, the world’s largest co-working space operator, withdrew from at least five negotiations to take on new space in Hong Kong this year. Meanwhile, Kr Space, one of the largest mainland co-working platforms, surrendered an 83,000 sq ft lease in Wan Chai, another core office district, earlier this month.

People meet at WeWork, a shared office space, in Causeway Bay in June 2018. The world’s leading co-working space operator has pulled out of at least five negotiations for new space in Hong Kong. Photo: Jonathan Wong

.css-1m2rp1p{color:#34b8b5;}The View | In Hong Kong’s Central, the world’s most costly office market, landlords might have to come down to Earth

The View | In Hong Kong’s Central, the world’s most costly office market, landlords might have to come down to Earth