HK Office Rents Dip 2% In Q1 2022
HONG KONG – A recent report from Savills showed that average rents of Grade A office space in the Chinese territory dipped by 2 percent to HK$55 (around US$7) psf per month in Q1 2022 compared to the previous quarter, reported Mingtiandi on Tuesday evening (19 April, SGT).
But compared to its peaks in Q2 2019, office rents were down 27.2 percent during the period under review, as the 5th wave of the COVID-19 infections, stock market turbulence, Russia’s invasion of Ukraine, and the lockdowns in major mainland Chinese cities impacted office leasing deals in Hong Kong.
Moreover, the property consultancy revealed that global financial firms in the city have slashed their combined office space footprint by at least 312,000 sq ft since H2 2020.
For example, UBS surrendered 33,000 sq ft at Two International Finance Centre (IFC) and at its Li Po Chun Chambers branch, Nomura relinquished 56,000 sq ft at Two IFC, Standard Chartered returned 65,000 sq ft at its headquarters in the Standard Chartered Building in Central, while Deutsche Bank gave back 104,000 sq ft at the International Commerce Centre (ICC).
“Considering the impact of [work from home] and the reduction in office space take-up, Grade A office rents are likely to continue to drift down over the near term,” forecasted Ricky Lau, Deputy Managing Director & Head of office leasing at Savills Hong Kong.
Nonetheless, the retreat of global banks in Hong Kong office market has created openings for fintech upstarts, enabling them to secure office space in newer commercial properties with higher levels of vacancy. These included new rental deals inked at office buildings, such as H Code and The Wellington in Central in Q1 2022.
Other commercial buildings that found new tenants during the period are Tower 535 in Causeway Bay, as well as The Chelsea in 69 Jervois Street and 33 Des Voeux Road West, both of which are located in Sheung Wan.
However, Savills thinks that landlords of older office buildings would face an extended challenging period.
“A total of 17.2 million sq ft of net of available Grade A office space over the next 4 years may mean a long road to recovery for the office sector, with tenant preferences shifting towards contemporary builds and green certified space,” explained Simon Smith, Regional Head of research and consultancy for Asia Pacific at Savills.
Furthermore, the property consultancy thinks that Hong Kong’s current vacancy rate of 6.2 million sq ft and a pipeline of upcoming office stock totalling 11 million sq ft between 2022 and 2025 will offer plenty of upgrade opportunities to would-be tenants.
Over the same period, the trend towards green-certified buildings will also pose a challenge to landlords of older commercial properties who have not refurbished their assets.