Office Vacancy in Hong Kong’s Central Tops 7% for the First Time Since 2004

Hong Kong’s office market continued to slide in December, with the vacancy rate for Grade A space in Central surpassing 7 percent for the first time since 2004, according to JLL.

In its Property Monitor Report released Monday, the real estate consultancy said vacancy in the key commercial district reached 7.3 percent last month, up from 6.9 percent in November, and would likely keep rising as tenants prepare to surrender more office space in the coming months.

The total amount of grade A office space leased in Hong Kong fell by 175,600 square feet (16,314 square metres) in December, growing from a 130,500 square foot contraction in November, as citywide vacancy edged up to 8.9 percent from 8.8 percent.

“The rental decline trajectory continued across all major office submarkets, with net effective rents in the overall market dropping 1.1 percent month-on-month in December,” said Alex Barnes, head of office leasing advisory at JLL in Hong Kong. “Tsim Sha Tsui experienced the most significant contraction in rents during the month. Its rents dropped 1.7 percent month-on-month, while those in decentralised submarkets remained relatively resilient.”

Occupiers Downsizing

The report pointed to cutbacks by a number of high-profile tenants in the city that helped to boost vacancy rates in December.

With Hong Kong’s retail market continuing to struggle, fashion house Lane Crawford exited 19,400 square feet of office space at One Island South in Wong Chuk Hang, a former industrial area that has gained favour with commercial users in recent years.

FTLife Insurance relinquished an entire floor with 16,500 square feet of space at the FTLife Tower in Kowloon Bay. The insurer in 2018 had leased 100,000 square feet across six floors of what was then called Hong Kong Pacific Tower, in a deal that included the naming rights to the 27-storey building.

Global courier DHL leased 90,900 square feet at PAG’s International Trade Tower in Kwun Tong, downsizing and relocating farther east in the peninsula from Kowloon Bay.

Among all submarkets, Kowloon East continued to show the highest vacancy rate at 14.1 percent in December, while Hong Kong East had the least empty space at 5.1 percent.

Average monthly rent throughout the city in December was HK$58.80 ($7.59) per square foot down nearly 19 percent from the average of HK$72.5 per square foot in the same month of 2019.

Investment Perks Up

While office leasing activity was limited towards the end of 2020, the investment market became more active despite lingering pandemic uncertainties, the report said.

Notable transactions included the sale of the 19-storey, 1997-vintage SML Tower in Kwun Tong for HK$1.44 billion (HK$9,604 per square foot) and the 14-storey, 1986-vintage Tung Chiong Commercial Building in Jordan for HK$510 million (HK$14,922 per square foot).

JLL said both properties were reportedly acquired by the same buyer.