Weak office market in Central expected to pick up on IPO rebound

Rents and leasing activity are likely to pick up by 2015 in tandem with IPOs, consultants say

PUBLISHED : Wednesday, 05 February, 2014, 9:35am
UPDATED : Thursday, 06 February, 2014, 4:02am

The office market in Central district in Hong Kong will remain weak in the first half of this year, property consultants say, but rents and activity are expected to pick up by next year as more initial public offerings come to market.

Several law firms had adopted a wait-and-see approach as listing activity rebounded, said James McLean, executive director of office services at CBRE Hong Kong. "They no longer look to drop spaces in Central," he said.

According to PricewaterhouseCoopers forecasts, funds raised through listings in the city this year will exceed HK$250 billion, mostly in the second half, compared with HK$169 billion last year.

McLean expects an increase in leasing activity and rentals next year and beyond. However, the office market will remain subdued in the first half.

Overall occupier demand was likely to remain weak and landlords would continue to focus on tenant retention, CBRE said. Their more flexible attitude towards asking rents should provide occupiers with room to negotiate, the consultancy firm said.

John Siu, managing director of Cushman & Wakefield Hong Kong, said demand continued to gradually improve but was mainly driven by firms seeking small to medium-sized offices.

As a result of the continued lack of demand for grade A office space from large banks, rents were unlikely to increase this year, he said.

Siu said occupation cost was still a concern for tenants. Some companies that stay in Central have had to consider cutting space by such measures as requesting senior staff to share an office.

Cushman & Wakefield said net effective rents in core Central in the fourth quarter averaged HK$103.54 per square foot per month, compared with HK$64.81 in Wan Chai and Causeway Bay, while the average rent in Kowloon East was HK$31.81.

Consultancy DTZ said rents in grade A offices in Central, Admiralty and Sheung Wan dropped 2.9 per cent quarter on quarter to HK$100 per square foot per month during the period.