Cheung Kong Center Hits 21% Vacancy As Empty Office Space Hits Record High
HONG KONG – Data from Midland IC&I showed that the vacancy rate of Cheung Kong Center, a landmark office tower owned by billionaire Li Ka-shing, has increased from merely 5.4 percent in mid-2020 to a record high of 21 percent in September 2022, reported Bloomberg on Monday morning (31 October, SGT).
This comes as the total amount of empty Grade A office space across Hong Kong nearly tripled in three years to an all-time high of 11.9 million sq ft as of October 2022, according to figures from CBRE.
While the office market downturn is happening across the world as COVID-19 pandemic resulted in the prevalence of working from home (WFH), the record office vacancy level in the Chinese territory is due to the pandemic woes combined with other issues, namely a sealed border with China and harsh COVID-related measures unseen in financial hubs like New York or Singapore. The prolonged doldrums have begun to negatively impact even premium office buildings that usually remain immune to slumps.
“Hong Kong has offered itself as two things: a gateway to China and a regional hub. (But) current COVID restrictions really deny both of those benefits to office tenants, particularly when people look to Hong Kong as the base for regional headquarters. That appeal has been dramatically diminished,” explained Savills’ Senior Director for research and consultancy Simon Smith.
Cheung Kong Center, where major banks like Jefferies and Goldman Sachs have taken up space, isn’t the only office building facing an exodus of office tenants. Nearly 5 percent of the available office space at the International Commerce Centre, which houses Deutsche Bank and Morgan Stanley and, is empty, up from a vacancy rate of 1 percent in mid-2020. In Central Plaza, a top-end office tower in the Wan Chai district popular with financial companies and foreign embassies, the vacancy rate rose from 3.2 percent to 9.4 percent.
Exacerbating the situation, Hong Kong is witnessing a substantial increase in Grade A office stock for the first time in more than 10 years. In Central, developers Henderson Land and CK Asset Land are each constructing a skyscraper, which are expected to be finished in 2023. Henderson Land is also developing a harbour-front commercial project with office space that is expected to be partially ready come 2027.
Still, there are some bright spots in Hong Kong’s office sector. In Sun Hung Kai’s commercial development above the high-speed railway terminus that will be linked to mainland China, UBS Group has committed to be an anchor tenant and pre-leased 9 office levels. That development is expected to be finished by 2025.
However, these future commercial properties are adding more competition in a tenant-starved office market and there will unlikely be ample demand for office space in Hong Kong anytime soon.
“Demand is pretty tepid at the moment” said Savills’ Smith, adding that they’re “not seeing a great deal of pre-commitment” to new projects at present.