Rebound In Hong Kong Office Rents Could Be Delayed

HONG KONG – Experts expect the reopening of the city to breathe new life into its office sector, but a recovery in office rents could be delayed, reported the South China Morning Post (SCMP) on Sunday (9 October, SGT).

“With the gradual reopening of the international borders and the pandemic starting to stabilise, we anticipate that this could prove to be a catalyst for demand,” said Don Taylor, Director of office at Swire Properties.

He explained that the relaxation of COVID-related measures in Hong Kong would enable in-person inspections of commercial properties and also eliminate some of the uncertainty for global firms with regional offices in the city.

However, the local office market is facing some uncertainty in the short- to medium-term. “Given the current state of the Hong Kong economy, slowing growth in the Chinese mainland, the imbalance between demand and supply in the local office market, as well as the real threat of a global recession, rents are likely to remain under pressure into next year.”

Still, due to the Chinese territory’s status as global financial hub and growing significance to the future of the Guangdong–Hong Kong–Macao Greater Bay Area (GBA), he expects there will be continued demand for high quality grade A office space here.

In terms of office supply, real estate consultancy CBRE revealed that 8.2 million sq ft of office space is forecasted to enter the market over the next two years. Given the already record-high amount of vacant office space of 9.6 million sq ft as of March 2022, office rents in Hong Kong could fall by up to 5 percent in 2022, and an additional 5 percent to 10 percent by 2023.

Meanwhile, Swire Properties is poised to unveil its new commercial project, Two Taikoo Place in Quarry Bay. With a gross floor area (GFA) of 1 million sq ft, the 42-storey office building is slated to be ready occupancy before the end of 2022. Majority of its tenants are western companies.

“In our Pacific Place portfolio, just under a quarter of our tenant base is from the Chinese mainland. That figure for Taikoo Place is significantly lower but growing. We’ve always maintained a diverse and balanced tenant base across our portfolio, both in terms of nationality and the sectors they operate in,” noted Taylor.

Taylor revealed that despite the current state of Hong Kong’s office sector, Swire’s core portfolio, which includes both Taikoo Place and Pacific Place, has recorded a occupancy rate in the high 90 percent range.

As for Two Taikoo Place, 50 percent of its office space has been pre-leased. Its tenants include Swiss bank Julius Baer, which has agreed to lease 4 floors collectively measuring nearly 100,000 sq ft, and two other banks have committed to occupy almost 200,000 sq ft. Other tenants are BASF, Amundi, and the Boston Consulting Group.

Other new office towers anticipated to be completed in Hong Kong this year include 98 How Ming Street in Kwun Tong and Airside in Kai Tak. Jones Lang LaSalle’s (JLL) Executive Research Director Nelson Wong added that these commercial properties will boost new office stock to 5 million sq ft.