Office Lessors Entice Tenants With Renovation Subsidies: CBRE

HONG KONG – CBRE revealed that office landlords in the city are trying to attract tenants by offering perks like renovation subsidies, as office vacancy hit the highest level in 21 years, reported The South China Morning Post (SCMP) on Thursday (8 October).

The property consultancy’s Executive Director Alan Lok said some office lessors have started providing a one-time subsidy to help lessees fit out their office premises.

“In some cases, the landlord would offer a subsidy of about HK$100 (US$12.9) per square foot (psf),” Lok said during a Wednesday media briefing.

Renovation subsidies are appealing as relocation costs in Hong Kong are exorbitant. For instance, renovating a prime office space would set back tenants for HK$1,000 psf, but the relocation expense could add up to HK$1,200 psf as the lessee needs to return the office space to its original condition when the lease expires. The cost can be spread out to about HK$30 psf per month over 3 years.

Lok noted that to justify an office relocation with cost-cutting as the goal, the rent of the new workplace should be lower by HK$30 psf. As a result, some companies don’t have head offices in Hong Kong as it’s hard to get approval given the high renovation costs.

CBRE shared that desperate landlords have been offering a wide range of benefits instead of rental discounts as 7.8 million sq ft of office premises remain vacant to date. This is equivalent to four Central Plazas and the highest amount since 1999.

The property consultancy pointed out that Kowloon East’s vacancy rate of 15.4 percent is the highest among all of the city’s districts. Moreover, Savills shared that lessors of premium offices in Kowloon are mostly not willing to reduce office rents as they are already at their lowest level of HK$20 to 30 psf.

In addition, there’s additional 950,000 sq ft of office space that have been surrendered by lessees before the end of the lease. This is nearly the size of the HSBC building.

Furthermore, to encourage property agents to secure tenants, office landlords have raised their commission from the typical one month worth of rent to 1.5 to two months’ worth. Some in Kowloon are even providing three months’ worth of rent.