Hong Kong Office Market Has Worst Outlook In Asia Pacific
HONG KONG – Office rents in the Chinese territory will face further downward pressure as a huge supply of 6.8 million sq ft will enter the market this year, at a time when Hong Kong’s office market is still reeling from the COVID-19 pandemic, according to an opinion piece published by the South China Morning Post (SCMP) on Monday evening (28 November, SGT).
Consequently, among the top office markets in Asia Pacific, the outlook for office rental growth in Hong Kong over the coming years is the worst alongside Tokyo.
Still, Lauressa Advisory Partner Nicholas Spiro contends that Hong Kong’s office sector “has become increasingly tenant-friendly at just the right time” and it still holds some advantages against rival Singapore, where the office market is flourishing and has one of the brightest outlooks in the region.
First, Hong Kong’s office market is much larger and more diverse, with less than 20 percent of the city’s Grade A office supply located in Central, while about 33 percent are situated in non-core districts where office rents are more affordable, based on CBRE data. In comparison, Singapore’s office market is centred around its central business district (CBD).
“It stands to reason, therefore, that average rental rates are higher in Singapore, where grade A stock in the CBD accounts for nearly 70 per cent of the city’s overall stock,” he argued, citing data from Cushman & Wakefield (C&W).
“Second, the increasing maturity and ramp-up in supply in decentralised office districts in Hong Kong provide occupiers with cost-effective solutions to lease space in non-core locations. Although rents for the market as a whole are down 28 percent from their peak, the price differential between Central and Hong Kong East still stands between 55 and 65 percent, according to CBRE.”
Third, while non-core areas benefit from tenants shifting to newer and higher quality office properties, some major occupants have always been based in Hong Kong’s decentralised districts. For example, many tech firms – which are presently facing a downturn – started leasing office space in Hong Kong East. Comparatively, tech firms expanding their office footprint in Singapore’s CBD is viewed as a risk due to the mass layoffs in the tech sector.
CBRE’s Head of occupier research Asia-Pacific Ada Choi said “decentralisation” is not the correct term to describe the trends in the city’s office sector, especially in regards to flight-to-quality trends within core districts, as occupants have more options than in supply-constrained Singapore.
Furthermore, Hong Kong benefits from its veteran office landlords who have sizable portfolios located in core and non-core districts. “These are top developers who know how to design and manage” office buildings in a post-COVID environment, she added.