Hong Kong Office Stock Hits 23-Year High

HONG KONG – Figures from the city’s Rating and Valuation Department showed that the number of completed private office buildings spiked in 2022 to a 23-year high, reported The Standard on Thursday morning (9 March, SGT).

Last year, the amount of new office space in Hong Kong surged by more than 4-fold to 3.78 million sq ft. Of this, Grade A office space made up 3.22 million sq ft, based on government data.

Hong Kong’s overall office rent also dipped by 0.7 percent in January 2023 on a monthly basis. Nonetheless, office rents in Central and Central edged up by 1.6 percent month-on-month.

Meanwhile, Bloomberg reported on Thursday morning (9 March, SGT) that not all asset classes, particularly office space, appear to be benefitting from Hong Kong’s border-reopening with mainland China and the return of Chinese tourists.

While the city’s restaurants and shops are bustling again and apartment sales are picking up, there are bleak signs for the office market.

For example, Sun Hung Kai Properties recently acquired a prime commercial site, on which will eventually stand Kowloon’s 2nd tallest building, for HK$4.73 billion. However, the selling price is significantly lower than the HK$7.3 billion to HK$12 billion the site was expected to fetch.

The low price indicates that Hong Kong’s largest developer is very cautious. The sale also means the city’s business elites are doubtful about Hong Kong’s economic recovery, and by extension, its office market recovery.

In 2022, data from property consultancy CBRE showed that the vacancy rate of Grade A office buildings in the city reached a record high of around 15 percent. In Hong Kong, financial firms make up 27 percent of overall office leasing volume, making them the biggest occupant of office space. But as Western multinational banks reduce their exposure to China and slash jobs, who will take over those expensive office leases?

There are few takers. Hong Kong government agencies are also active lessees, accounting for 9 percent of the overall office rental volume. However, they mostly lease office space in less pricier areas, like Kowloon.

Furthermore, property agencies are pinning their hopes on the return of mainland Chinese businesses, but instead of renting office space, they seem more interested in industrial properties.

The disparity in preference is due to a divergence in vacancy levels. In 2022, 4.3 million square feet of new office space entered the market – the highest since 2008, and only 20 percent was absorbed by the market by the end of the year. On the other hand, new warehouse space is very limited in Hong Kong.