How coronavirus crisis is shaping the future of office space in Hong Kong

The net absorption of office space has fallen to an 18-year low, with a dramatic drop in demand from mainland firms. In the long run, the Covid-19-induced trend towards flexible working arrangements will drive office decentralisation

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Office rents in Hong Kong, especially Central, have registered sharp declines. Photo: Winson Wong

Published: 11:00am, 12 May 2020Updated: 11:00am, 12 May 2020

One would be hard-pressed to identify another major economy that has suffered more shocks than Hong Kong in the past two years.

Ever since the US trade war with China escalated sharply in the spring of 2018, the city has faced one crisis after another. Long before Covid-19 struck, Asia’s financial hub – which fell into recession in the third quarter of last year – was reeling from the combined effects of trade tensions, the slowdown in China’s economy and the mass anti-government protests.

In Hong Kong’s office sector, the occupier and investment markets have been hit by the triple whammy of internal and external shocks. Data from CBRE shows the net absorption of office space has swung from an expansion of 1.3 million square feet in the third quarter of 2018 to a contraction of 467,000 last quarter.

Indeed, net take-up in the first quarter of this year was not only the weakest since the second quarter of 2002, it was the first time that the sector suffered a second straight quarter of negative net absorption since the 2008 financial crisis, CBRE notes. In March alone, rents fell 3.3 per cent month on month, the sharpest monthly decline on record, separate data from JLL shows.

Investment activity has collapsed, with the office sector bearing the brunt of the decline in commercial property transactions, which fell last quarter to the second-lowest quarterly total since the second quarter of 2009, CBRE notes.

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One of the clearest indications of the severity of the downturn is the dramatic drop in demand from mainland companies, a pillar of leasing activity in Hong Kong in recent years.

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