Rents at The Center, Hong Kong’s most expensive office tower, cut by 5 per cent as companies defer expansion plans amid protests
- A lease for a mid-level floor at The Center was completed at HK$95 per sq ft in August
- Office market at a standstill, with only three transactions completed as of August 23
Rents at a number of buildings have also been reduced, including Bank of China Tower, where asking lease rates have been cut by 4.3 per cent to HK$156 in July compared to June, according to figures from CBRE.
Rents at the 73-storey iconic tower for mid-level floors without sea views dropped to below HK$100 per sq ft in July after negotiations between tenants and landlords, said Freddy Ho, senior sales manager at Centaline Commercial, who is familiar with a recent lease deal of 2,500 sq ft at about HK$95 per sq ft.
CK Asset Holdings sold a 75 per cent stake of The Center for a record HK$40.2 billion (US$5.15 billion) in November 2017. The deal was completed in May 2018.
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“Some owners have noticed the recent market sentiment and adjusted rents downwards by about 5 per cent to more realistic levels accepted in the area,” Ho said. “Some time after the movement started, they felt the leasing momentum slowed down.”
The Center had a vacancy rate of 11.7 per cent as of late August, according to agency Midland IC&I.
The vacancy rate had tripled to a record high of 13.1 per cent in April within six months of the new owners raising rents by 10 per cent to keep their rental yields high.
Its vacancy rate in August 2018 was just 4.2 per cent.
“The vacancy rate had been kept well [under check] before CK Asset sold it. When the investors bought it, they had to catch the yield so they pushed the rents up and some tenants were lost,” Ho said. “The owners had reached a consensus to push the rents on the higher floors to over HK$100, about 10 per cent higher than when CK Asset handed over the asset.
“Another reason is that the recent market sentiment has seen some change. One major tenant that had committed to leasing suddenly surrendered two floors, so there was about 50,000 sq ft more [vacant space]. So the vacancy rate suddenly shot up.”
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Ho added the vacancy rate at The Center was likely to fall after the rent cut and the landlords reached out to more agencies, while the rents of office buildings in Central could drop a further 5 per cent in the fourth quarter.
Meanwhile, the office market has almost come to a halt. Only three transactions were recorded in 50 grade A buildings across Hong Kong as of August 23, a situation that is “even worse than Sars in 2003 and financial tsunami in 2008”, according to Midland IC&I.
The agency, which has been keeping records since January 2016, expects the number of office transactions this month to match the low record of four last December. Some 19 transactions were completed in August last year.
“With tenants being generally cautious on the market outlook, downsizing and cost savings exercises are likely in the coming months,” said Ji. “We also expect a correction of rents in Central due to the foreseeable increase in vacancy.”
Separately, the office leasing market in Central contracted by 56,100 sq ft in July, pushing the vacancy rate up to a three-year high of 2.6 per cent, as companies delayed expansion plans amid increasing uncertainties in the global economy, according to JLL.
Admiralty saw the biggest drop in office rents at 5.3 per cent on year in July to HK$110.1 per sq ft, according to Knight Frank Research.
