Four reasons Hong Kong’s office property market will emerge stronger from the current crisis

Successive shocks suffered by Hong Kong’s real estate markets are sowing the seeds of a recovery that will benefit from healthier occupier fundamentals

In addition, the flurry of Hong Kong share offerings of US-listed Chinese firms provides hope for the sector

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The sunlight is reflected off the Bank of China tower located in Central, Hong Kong, as a Star Ferry crosses Victoria Harbour on July 14. Photo: Nora Tam

Published: 5:15am, 15 Sep 2020Updated: 5:45am, 15 Sep 2020

Few property markets have suffered as many blows as Hong Kong has over the past two years. The cumulative impact of China’s economic slowdown, trade tensions and the mass anti-government protests tipped the city into recession even before the Covid-19 pandemic erupted.

In Hong Kong’s office market, leasing activity had already slowed sharply in the final quarter of 2018, as the fallout from Beijing’s deleveraging campaign and the trade war led to a steep decline in demand from mainland companies.

Since then, the market has had the rug pulled out from under it. Net absorption of office space has been in negative territory since July 2019, Grade A rents plunged 17 per cent between January 2019 and July 2020 and the overall vacancy rate has shot up to 8 per cent, double the level at the end of 2018, data from JLL shows.

While office leasing activity globally has fallen dramatically this year due to lockdowns and the shift to working from home, Hong Kong sticks out like a sore thumb in terms of the multifaceted nature of the downturn. “This is our fifth kick in the gut,” notes Tom Gaffney, regional managing director for the Greater Bay Area and Hong Kong at CBRE.

Yet, these successive shocks, while having dealt a severe blow to corporate performance and eroded demand for office space, are sowing the seeds of a recovery, one that will benefit from healthier occupier fundamentals.

Office workers cross a busy street in Central, Hong Kong, on April 15. Many companies have shifted to work-from-home arrangements to help contain the spread of the coronavirus, dealing a blow to office leasing activity. Photo: Nora Tam