Hong Kong Office Rents Down 2.3% In Q3

HONG KONG – Data from Cushman & Wakefield (C&W) showed that overall office rents in the Chinese territory dipped 2.3 percent quarter-on-quarter and 4.0 percent year-to-date during the 3rd quarter of the year, according to a press release published on MediaOutReach on Thursday (6 October, SGT).

The real estate consultancy said overall office rents in Hong Kong have now plunged by 29 percent since its peak in April 2019.

By office submarkets, Greater Central and Greater Tsim Sha Tsui respectively recorded significant rental contractions of 2.4 percent and 3.1 percent on a quarterly basis.

Cushman & Wakefield said office leasing activities remained quiet in Q3 2022 amidst a backdrop of interest rate hikes, global economic instability, and continuing uncertainty over the reopening of Hong Kong’s border with mainland China.

“We expect the overall office market rental decline will narrow in Q4 2022, with the full year rental forecast now in the -3 percent to -5 percent range,” said C&W’s Managing Director and Head of Project and Occupier Services for Hong Kong, John Siu.

Despite the lacklustre forecast, office space pre-commitments at new project completions pushed up Hong Kong’s overall office net absorption to 183,000 sq ft.

The positive net absorption was primarily driven by pre-commitments at newly completed office buildings. In fact, submarkets with new office completions, like Hong Kong South, Hong Kong East, and Kowloon East, all witnessed a recovery in net absorption during the third quarter.

“There were quite a few notable office completions this quarter, including Two Taikoo Place in Hong Kong East, which had witnessed relatively strong pre-commitment, pushing the submarket’s quarterly net absorption to 348,000 sq ft,” Siu noted.

However, Hong Kong’s total new leasing demand remained weak, with some tenants surrendering office space upon lease expiry to slash costs. Coupled with the effect of the 2 million sq ft of newly completed office space during the quarter under review, the overall office availability rate increased from 13.8 percent in Q2 to 16.1 percent in the 3rd quarter.

“As office availability remains high, some landlords have adopted more flexible leasing plans, such as providing rent-free periods and capital expenditure subsidies to attract tenants.”

“Core submarkets recorded several leases via flex space expansions in recent months, with more businesses looking for flexible lease terms and lower capital expenditure amid a market facing economic uncertainty and interest rate hikes. We expect to see this trend remain in 2023,” he added.