The ViewHong Kong’s tenant-friendly office market still gives it an edge over Singapore

At first glance, Hong Kong’s underperforming office market compares poorly with that of Singapore, where demand is pushing rental rates close to record highs

But Hong Kong’s ready supply of quality office space, particularly in decentralised office districts, could give it an advantage over supply-constrained Singapore

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A tram passes commercial buildings in Hong Kong’s Central district on June 21, 2021. Photo: AFP

Published: 7:15pm, 28 Nov 2022

Hong Kong policymakers have their work cut out. The damage wrought by a succession of shocks over the past several years has raised uncomfortable questions about the city’s future as a global financial centre. The biggest blow by far was the imposition of draconian pandemic-related restrictions that cut Hong Kong off from the rest of the world as well as from mainland China.

Even the government’s move in September to scrap stringent hotel quarantine requirements for incoming travellers still leaves the city without a road map for a full reopening. The severe problems faced by mainland China in relaxing its own curbs amid a surge in cases show how much Hong Kong’s fortunes hinge on how long Beijing sticks with its zero-Covid policy.

Contrasting approaches to the management of the pandemic have put the long-standing rivalry between Hong Kong and Singapore under increased scrutiny. Having begun to open up to the rest of the world last year, Singapore has bolstered its appeal in the eyes of international investors.

In the property market, the performance of the two financial hubs has diverged sharply. Nowhere is this divergence more pronounced than in the office market, which itself is under intense pressure due to the virus-induced shift to hybrid working and the economic fallout from the dramatic rise in interest rates.

In Hong Kong, Covid-19 erupted when the fundamentals of the office market had already deteriorated significantly since grade A rents peaked in the second quarter of 2019. According to data from CBRE, net take-up has contracted for 10 of the last 12 quarters, helping push up the overall vacancy rate from 6 per cent in 2019 to 14.4 per cent, a record high.

Moreover, the pandemic coincides with a sudden surge in supply. A massive 6.8 million square feet of new space is expected to be delivered this year and next, data from CBRE shows.