Office rents were flat or rose modestly in most districts in second quarter

Office rents in most areas of Hong Kong were flat or rose modestly in the second quarter this year, according to property consultants. The exception was Tsim Sha Tsui, where a high vacancy rate pushed rents down.

They expect rents in Tsim Sha Tsui to continue to fall.

Against a backdrop of weakening economic conditions and concerns - since allayed - that the United States Federal Reserve was poised to scale back its quantitative easing policy, office tenants grew more cost-conscious and relocated to cheaper premises, they said.

"We have seen some tenants moving from Tsim Sha Tsui to Kowloon East," said Simon Lo, executive director of Colliers' research and advisory department for Asia.

The downward pressure on office rents in Tsim Sha Tsui was also because landlords in the district had adopted a more flexible stance during lease renewal negotiations in order to retain the tenants that they have, he added. Average effective rents in Miramar Tower stood at about HK$50 per square foot, versus average rents of HK$66 per sq ft in The Gateway, part of the Harbour City development, according to Lo.

He sai d August rents in Tsim Sha Tsui had fallen by about 1 per cent compared with the rents charged in May.

Colliers said office rents in most districts rose by between 1 and 2 per cent quarter-on-quarter in the second quarter.

Tsim Sha Tsui was the exception, it also said. Grade A office rents there dropped by 1.8 per cent over the period, it said.

Edward Farrelly, head of research for consultancy CBRE in Hong Kong, said he expected vacancy rates there to increase over the coming 12 months.

"I therefore expect Tsim Sha Tsui rents to fall by about 5 per cent over the next year," he said.

But Farrelly believes rents will rise in the Wan Chai area. While office occupiers there are more cost-conscious, companies are very reluctant to sacrifice the benefits that come with a centrally located office, he said.

Since mid-2009, average office rents in Wan Chai have risen by 13 per cent, said Farrelly, who expects a further 10 per cent increase in rents in the area over the next 12 months.

Looking ahead to next year and beyond, CBRE expects to see an improvement in demand for office space brought about by stronger economic growth.