HK Vacant Office Space Hits Record High
HONG KONG – Property developers are building two large office towers in Central, even though the amount of unoccupied office space in the Chinese territory surged to record high of 9.1 sq ft in December 2021, reported Bloomberg on Wednesday afternoon (26 January, SGT).
Even though vacant office stock is equivalent to almost 158 football fields, the 2 upcoming office buildings are considered as the largest additions to office leasing supply in Central since 2005, when AIA Central was completed.
Notably, Henderson Land Development is constructing a 36-storey glass tower shaped like a flower designed by Zaha Hadid Architects. Just across the street, CK Asset Holdings is redeveloping the 1970s-era Hutchison House into a new 41-storey skyscraper.
Plans to start building the new office towers already started before the onset of the COVID-19 pandemic impacted demand for office space.
Both modern buildings are poised to open by 2023, but so far, details on the tenants of both commercial properties are largely undisclosed, except for Auction house Christie’s, which will be a major tenant in Henderson Land’s building.
Meanwhile, the supply glut of office space is even more evident in Hong Kong’s other business districts. In Kowloon East, four office towers measuring over 2 million sq ft will be completed this year. At the same time, across the Victoria Harbour, Swire Properties is finishing its Two Taikoo Place, which comes with 1 million sq ft of floor area.
Overall, there will be 4 million sq ft of upcoming office stock in Hong Kong for 2022, but merely 3 percent has been pre-committed, noted Savills in December 2021.
Given the huge oversupply and the difficulties in securing tenants, office landlords are offering more incentives, like rent-free periods and lease terms that are beyond the typical three years. In Kowloon, some commercial property owners are even paying for the fit-out cost of their occupants, revealed Ada Fung, Executive Director for office services at CBRE.
Given the sustained growth in office stock over the next two years, “it will take quite some time to absorb the vacant space”, she noted.
As for mainland Chinese companies, they presently rent around 30 percent of the Grade A office buildings in Central, up from just 5 percent in 2008.
But because borders with mainland China are still closed, executives of such firms can’t enter Hong Kong and view office space. Even if they can, it’s unlikely that they will spend a substantial amount of money on large office space like they used to.
“The biggest market for them is mainland China after all. It will be easier for them to conduct research or meetings in the mainland.” Therefore, Chinese firms don’t have much need to keep a large office in Hong Kong, explained John Lam, Head of China and Hong Kong property research at UBS Group AG.
Furthermore, the falling demand for office space from multinational corporations would exacerbate the vacancy situation. Global banks in Hong Kong have been surrendering workspace to reduce expenses. About a year ago, Standard Chartered and BNP Paribas relinquished office floors in their Hong Kong HQs.
Hong Kong’s super strict “zero-COVID” strategy, including quarantine of up to 21 days for inbound travellers, have impacted demand for office space by global firms. And foreign workers are increasingly considering leaving due to the harsh measures.
