HK Office Landlords Offer Flexibility To Lure Tenants

HONG KONG – Amidst a high vacancy level and a huge amount of incoming office stock in the next few years, real estate developers in the Chinese territory are offering flexible leasing terms in a bid to attract office tenants, reported The Financial Times on Tuesday morning (13 September, SGT).

“The leasing market, if (it’s) not at the bottom, it’s reaching the bottom, and will remain for some time. There’s a lot of space to absorb and digest,” said Paul Yien, Director of office leasing advisory at Jones Lang LaSalle (JLL) in Hong Kong. “There is a lot of new supply… which means office rents will be under pressure.”

In fact, the huge amount of vacant office space in the city is already impacting office property owners, who have grown accustomed to getting lucrative office rents due to the limited supply of land in Hong Kong.

For instance, Henderson Land Development’s earnings plunged by 34 percent year-on-year to HK$5.1 billion (US$650 million) during the 1st half of 2022.

To cope with the challenging times, some Hong Kong developers are offering flexible leasing terms to lure office tenants, and this move was uncommon in Hong Kong’s office market. For example, two sources revealed that New World Development is offering rental incentives at the 11 Skies mega project near Hong Kong airport.

According to CBRE, office vacancy in Hong Kong reached 11.9 percent during the 1st half of the year, with 9.8 million sq ft of office space left vacant – the highest since Q3 2003. But data from Colliers showed that Hong Kong’s office vacancy rate further increased to 12.3 percent in August 2022.

Worse, Savills expects that 17.2 million sq ft of Grade A office space will enter the market in the next few years, but annual take-up is only projected at 1 million sq ft. As such, the real estate consultancy expects that there will be an office supply glut equivalent to 250 soccer fields.

Multinational companies that reduced their office footprint in Hong Kong over the past two years include UBS, Nielsen, Nomura, Panasonic, BNP Paribas, Deutsche Bank, Société Générale, Standard Chartered, and National Australia Bank.