Demand for office space in Hong Kong cools by the most in five months, but rents edge higher

Cheryl Arcibal
Demand for office space in Hong Kong cools by the most in five months, but rents edge higher

New office lease activity in Hong Kong dropped by nearly a third in March – the most in five months – amid softening demand from mainland Chinese companies, JLL’s latest report showed.

The 30 per cent drop in office lettings pushed up the overall available space to 95,700 square feet or 4.8 per cent, up from 4.7 per cent recorded in February.

“If we are talking about month on month basis, it is the biggest drop since November 2018 when it dropped 55 per cent,” said Denis Ma, head of research at JLL. “We anticipate the slowdown in leasing demand to remain the major theme in 2019 amid sustained uncertainties surrounding the trade war between China and the US, and a slowing mainland Chinese economy.”

Rents, however, held up, rising 0.3 per cent month on month. They were given a boost by grade A office rents in Central, which increased by 0.5 per cent.

Demand for prime office space in Hong Kong to cool further as trade war weighs on companies

Ma said the uptick in rents was also the slowest since November 2018.

He said that although the vacancy rate remains below critical levels, landlords were still not considering lowering rents.

“Overall market activity has been somewhat subdued for the office market this month,” said Paul Yien, head of landlord representation at JLL. “But the resilience of the rental market, especially in Central where rents continue to climb higher despite ongoing tenant decentralisation, indicates that vacancy remains tight enough to keep rents on the up and up.”

Among the five business districts in Hong Kong, the Wan Chai/Causeway Bay area had the biggest increase in vacancy at 3.3 per cent from 3 per cent in February, followed by Central’s 2.2 per cent, up from 2 per cent in the same period.

Vacancy in Hong Kong East, which includes Quarry Bay, also edged higher to 1.9 per cent from 1.8 per cent.

Ma noted that new lettings have slowed down since last year’s fourth quarter. He said new signings in the first quarter had fallen by 14 per cent from the quarter ended December. On an annual basis, however, the drop in the first quarter was much sharper at 27 per cent.

“In Central new lettings are also dropping as occupiers seek out more cost effective space in [other] areas where monthly rents can be [cheaper],” Ma said.

Rents in grade A buildings in Central can be as high HK$147 per sq ft.

Thomas Lam, executive director and head of valuation and advisory at Knight Frank, said that despite the higher vacancy, available office space in the city remains low, which has kept rents high.

“Some companies have just decided to relocate to other areas. But I’m still very positive about Central and Causeway Bay grade A office market,” Lam said.

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