Hong Kong, Mainland China Cities Among Worst Performing Office Markets

HONG KONG – CBRE expects office rents in Hong Kong and mainland China cities to fall for the rest of 2022, and these are likely to be among the worst-performing office markets in Asia Pacific this year, reported The South China Morning Post on Thursday morning (1 September, SGT).

In Hong Kong, office rents are projected to dip by 22.5 percent, making it the 3rd worst-performing office market in the region among 22 cities tracked after Guangzhou and Tokyo, where office rents are projected to drop by 3 percent and 3.1 percent respectively.

Meanwhile, office rents in Shenzhen are expected to slide by 0.7 percent, while those in Shanghai are forecasted to fall marginally by 0.9 percent.

“Hong Kong and mainland China are lagging in terms of office rental growth,” noted Ada Choi, Head of occupier research and Head of data intelligence and management at CBRE Asia Pacific, who added that they have revised down their full-year expectations for the two markets.

On the other hand, CBRE expects Singapore and Seoul to be the top two performing office markets in the region as office rents in these places are forecasted to increase by 8.3 percent and 14.8 percent respectively in 2022.

One key reason why Hong Kong and mainland Chinese cities are laggards is their harsh COVID restrictions. While most major markets in Asia Pacific have opened up to international visitors as long as they’re fully vaccinated, mainland China and Hong Kong still require visitors to quarantine upon arrival, in addition to undergoing many COVID tests.

Another factor is that the border remains closed. “The continued closure of the border between Hong Kong and China mainly affects the recovery of Hong Kong in regards to attracting mainland companies and the return of Chinese tourists,” explained Choi.

The effect of the aforementioned is evident in Hong Kong. Based on statistics from Jones Lang LaSalle (JLL) the vacancy level of prime office space edged from 9.4 percent in June to 9.6 percent in July, which is near the record high of 9.8 percent seen in September 2021.

Given that 2.8 million sq ft of new prime space office is expected to enter Hong Kong’s office market this year, office stock will hit a level not seen since 2008, when it reached 3.5 million sq ft, according to data from Cushman & Wakefield (C&W).