China border reopening to boost demand for Hong Kong office space, but rents won’t rise significantly, analysts say

The reopening of Hong Kong’s borders with mainland China and the rest of the world is likely to boost the take up of office space in the city, but rents are not expected to rise significantly, analysts said.

They have given a wide range of forecasts for office rents, from an increase of as much as 3 per cent to a decline of as much as 10 per cent this year.

Hong Kong’s new office stock is estimated to hit 14.5 million sq ft in 2023, a record high and the equivalent of the total gross floor area of every building in Hong Kong’s core Central business district, said Marcos Chan, executive director and head of research at property consultancy CBRE.

“We will continue to see a supply boom coming into the market,” he said. “So, we do expect the vacancy level will continue to go up from, like I said, 14.6 per cent currently. We forecast that by the end of 2023, the market vacancy level will be getting closer to 16 per cent, if all new supply or the pipeline is completed in the next 12 months.”

Rents are likely to decline by as much as 5 per cent. “We are seeing a potential demand recovery, particularly from Chinese firms that will support leasing activity for 2023, thanks to the border reopening, while [multinational companies] will continue to stay cost-cautious on expansion plans due to global economic headwinds and high financing costs,” said Ada Fung, executive director, head of advisory and transaction services – office services, CBRE Hong Kong. “However, cost control and escalating vacancy pressures will continue to weigh on rents until demand is strong enough to reverse this trend.”

The pace of recovery and overhang of new office spaces from last year are likely to temper any expansion afforded by mainland Chinese firms, said Savills, which forecast a further slump of as much as 10 per cent in office rents this year.

Swire Properties, Hongkong Land say end of Covid curbs to boost city’s outlook

“The rebounding stock market, a loosening of most Covid-19-related measures, as well as the scheduled border reopening with the mainland, are all positive spins for office demand, but uncertainties linger given hangover vacancy from 2022 completions, and concerns over the speed of recovery,” said Simon Smith, regional head of research and consultancy, Asia-Pacific, at Savills.

Others see office rents rising this year. “The reopening of China’s borders will be a game changer for the sector,” said Fiona Ngan, head of office services at Colliers Hong Kong. “As business travel resumes across borders, we expect more viewings and leasing enquiries, which are likely to strengthen office rents, with overall grade-A office rents estimated to increase moderately by 3 per cent year on year.”

Hong Kong’s Central is likely to “benefit the most with 5 per cent year-on-year growth compared to a dip of 2.3 per cent year on year at the end of 2022”, Ngan added.

Beijing abandoning its zero-Covid policy will definitely be a positive for Hong Kong’s property investment market and the rest of the region, said Regina Lim, director, head of property research, at M&G Real Estate Asia.

However, the return of Chinese tourists and Chinese businesses to the region could also drive up prices with higher demand. This, in turn, is likely to trigger further increases in interest rates by monetary authorities, tempering any recovery.

“We expect the inflow of Chinese tourists into the rest of Asia-Pacific to be very, very positive for not just hotels and retail, but also for corporate profits and office demand,” Lim said, adding that China’s closed borders had allowed for slower inflation, and its reopening could push up inflationary pressures.