HK Office Rents Drop 18% In June, To Decline Further This Year
Hong Kong – A DBS Bank analyst revealed that office rents in the city’s central business district (CBD) declined by 17 to 18 percent during the first six months of 2020, reported The South China Morning Post on Sunday (27 September).
However, the worst is not yet over as DBS Bank’s property market analyst Jeff Yau expects office rents here could plunge by 25 to 30 percent for the entire year.
“The office market is worse than the city’s housing market. Corporate downsizing is very common – there is no expansion plan really.”
Telecommuting is forecasted to become the norm in the mid- to long-term, especially for financial institutions, tech firms, and multinational companies, as businesses focus on reducing expenses amidst the COVID-19 pandemic.
“Do they need so much space? It will be different from before,” said Yau, adding that firms will most likely evaluate their office space requirements in the coming decade.
In August, office rents in the CBD slid by 2.5 percent – the highest monthly decline among Hong Kong’s office districts and the first time it has happened since December 2005, based on figures tracked by JLL.
Moreover, the property consultancy noted that the vacancy level in the CBD is still rising.
In fact, office premises relinquished by occupants before the end of their leases hit around 520,000 sq ft, which is equivalent to about 2.2 percent of Grade A office supply. It is also the first time that the amount of surrendered space exceeded 500,000 sq ft since October 2002. Grade A office space take up also dropped by 13,703 sqm (147,500 sq ft) by the end of August compared to the end of the prior month.
Hong Kong’s office vacancy rate hasn’t hit rock-bottom yet, added DBS analyst Yau. He thinks it could go beyond 7 percent by the end of 2020, as there’s barely any demand for office space, with many co-working players relinquishing office premises prior to the end of their lease.
Meanwhile, a survey conducted by Cushman& Wakefield (C&W) in June and July on the city’s office tenants showed that cost reduction has become a prime concern among 70 key occupants that represent a wide cross-section of office lessees in the city. This is due to uncertain economic conditions amidst the virus outbreak, coupled with Hong Kong protests and belligerent US-China ties.
COVID-19 has “dealt many firms a third blow and led to an even more uncertain business outlook among office occupiers,” said C&W’s Hong Kong Research Head Reed Hatcher.
As a matter of fact, over 85 percent of those polled said their businesses have been impacted by the coronavirus disease, with about 33 percent currently considering to reduce their office footprint in the next three years.
“Beyond that, Covid-19 has also forced many to adopt new ways of working and given way to new priorities that may outlive the pandemic,” noted Hatcher.
For instance, most firms are expected to invest in technology and remote working over the long-term, with around 65 percent of those surveyed planning to implement some degree of telecommuting.
Among businesses that intend to continue with flexible work arrangements even after COVID-19 has been successfully dealt with, the majority said they will apply the work from home set-up to 11 to 30 percent of their staff.
