HK Office Rents May Fall Further As Premium Brands Transfer To China Or Singapore

HONG KONG – Experts revealed that office rents in the Chinese territory could face further downward pressure this year as some high-end brands mull transferring their regional headquarters to mainland China and Singapore, reported the South China Morning Post (SCMP) on Thursday morning (7 January, SGT).

For instance, sources shared that L’Oréal intends to scale back its regional office in Hong Kong and transfer roles to Singapore and China. French shoe seller Ash plans to relocate its operations to Shanghai, while other posh brands are expected to follow suit once border restrictions are relaxed.

Luxury brands like Fendi, Celine, Bulgari, Versace, Givenchy, and Salvatore Ferragamo have already slashed their HQ workforce in the Chinese territory and transferred resources to mainland China, added the sources.

A sizeable number of high-end brands are mulling to relocate their regional operations to China to be near their primary growth market, which is increasingly making up a larger share of their profits and sales. In comparison, Hong Kong’s economic woes have been exacerbated by the health crisis following widespread protests in H2 2019.

For instance, Prada has seen different results: its sales in China sharply rose 52 percent in H2 2020, while it had to shutter its flagship store in Hong Kong in 2019 due to dismal retail sentiment.

Experts divulged that the relocation of luxury brands from the Chinese territory to be near smaller but growing markets in the ASEAN region and even Australia could end up helping Singapore’s commercial property market.

On the other hand, the trend could weaken demand for office space and retail premises in Hong Kong, leading to higher vacancy levels and lower rents.

According to Savills’ Senior Director of research & consultancy Simon Smith, regional offices in Hong Kong widely differ in sizes, but usually average about 30,000 sq ft. And these are typically situated in Central and Island East, while some are located in Causeway Bay.

Coupled with the rising unemployment and more bankruptcy petitions, Savills said the prospects of the city’s grade A office market looks dismal after rents for the whole of 2020 fell by 17 percent, the highest annual decline in 11 years.

As such, the property consultancy foresees that overall Grade A office rents in Hong Kong could drop by 5 to 10 percent during H1 2021, although it could hit rock-bottom during the period.