Hong Kong Office Rents Down 0.9% In Q1

HONG KONG – The 5th wave of the COVID pandemic hampered the recovery of leasing activities and dragged the office rents since the second half of Q1 2022, according to a report by Cushman & Wakefield (C&W) that was published on MediaOutReach on Thursday afternoon (8 April, SGT).

Overall office rents in Hong Kong fell 0.9 percent quarter-on-quarter and 3.1 percent year-on-year to HK$55.6 psf per month during the first quarter of the year.

In particular, office rents in Prime Central dipped 0.8 percent compared to the prior quarter and 1.3 percent versus the same period in 2021. Hong Kong East recorded the highest quarterly drop of 2.2 percent, while Greater Tsim Sham Tsui saw the higher annual decline of 7.5 percent.

“Despite this, the overall Grade A office rental level dropped by less than 1 percent quarter-on-quarter. With the pandemic situation starts winding down, and with new development projects due to complete, we expect the office leasing market to regain its momentum in the second half of the year,” said the real estate consultancy.

“The pandemic is expected to come under control, with social distancing measures set to be eased progressively. Given that office rental levels have now dropped with an accumulated plunge of circa 27 percent from the peak of 2019, we expect there is little room for further steep falls. We now anticipate a downward adjustment of 50 bps to 100 bps in Q2 2022, followed by a gradual recovery of leasing activities in H2 2022 with subsequent stabilization in rental levels.”

In terms of absorption, several office rental deals were registered in the first half of the quarter under review. Yet, the subsequent tightening of COVID-19 measures suspended on-site inspection activities by landlords and would-be tenants, resulting in fewer deals.

Still, Hong Kong’s overall office market saw positive net absorption over 3 straight quarters in Q1 2022, amounting to 245,100 sq ft. The banking & finance sector (34.7 percent) accounted for most of the new transactions in the first quarter, followed by consumer products & manufacturing (12.8 percent). The government (9.6 percent) as well as transportation & logistics (8.7 percent) sectors were also more active than before.

“We estimate a total net absorption of 300,000 sq ft to 500,000 sq ft in 2022, with the banking & finance sector leading demand for office space, while the professional services and logistics sectors will also remain active,” said John Siu, Managing Director and Head of Project & Occupier Services for Hong Kong at Cushman.

“From the supply perspective, 3 flagship projects in non-core areas are due to complete in H2 2022, bringing 2.3 million sq ft of new floor area to the market. We believe these new completions will help fuel office expansion and relocation, although the influx of space will inevitably ramp up the overall availability rate to around 16 percent to 17 percent” from 13.6 percent in Q1 2022, he added.