Hong Kong Office Market Contracted Again in July as Pandemic Struggles Continued

Hong Kong’s Grade A office market continued to struggle last month with the amount of space leased by tenants falling once again, as business confidence proves slow to return to the Asian financial hub.

July saw Hong Kong’s office market contract by 89,000 square feet (8,268 square metres), narrowing from June’s shrinkage of 97,800 square feet, as corporate downsizing activities continued at a slower pace, according to JLL.

The vacancy rate in Central was steady in July at 7.4 percent, as quality office buildings in the main business district met with greater occupier demand than those in the rest of the market, the property consultancy said in its Hong Kong Property Market Monitor report.

Despite a handful of buildings recording slight rental growth during the month, the average office rent in the city slid to HK$55.80 (now $7.16) per square foot from HK$56 in June. The citywide vacancy rate ticked up 0.1 points to 9.6 percent, exerting downward pressure on rents.

TST Market Rebounds

While Central stabilised, Wan Chai/Causeway Bay registered the steepest increase in office vacancy, rising 0.4 points in July to 9.8 percent, JLL said. Tsim Sha Tsui, meanwhile, was the only major business hub in the city to enjoy an increase in occupancy, with just 10.8 percent of the area’s offices sitting empty by the end of July, compared with 11.2 percent in June.

The largest lease noted in July in Tsim Sha Tsui was for 10,600 square feet in a low level at Chinachem Golden Plaza, for a rent believed to be between HK$26 and HK$29 per square foot per month.

Also last month, another two leases of 5,000 square feet or more were noted in the district at the sharp point of the Kowloon peninsula, according to records from local property agency Midland IC&I. The larger of these two deals involved an unnamed tenant leasing 5,737 square feet at the Woon Lee Commercial Building — taking an entire floor in the Austin Avenue property at a rate of HK$27 per square foot.

Another tenant took up a 5,000 square foot whole floor at the Cammer Commercial Building on Cameron Road in Tsim Sha Tsui at HK$36 per square foot, according to the agency’s data.

Even Hong Kong East, where Swire Properties has been winning over multinationals with its affordably priced portfolio of Grade A buildings, saw vacancy rise from 6.5 percent in June to 6.6 percent last month. In the blue-chip developer’s interim report released last week, the company described the Hong Kong office market as “weak”, with gross rental income from its portfolio in the city falling by 2 percent year-on-year during the first half of 2021, after adjusting for the disposal of its CityPlaza One project.

Henderson Adds to Central Supply

With Central’s prime office market at decade-long highs, the market received a large injection of new space last month when Henderson Land revealed The Henderson, a 36-storey commercial tower and the first major office project to enter the Central market in several years after the developer bought a former car park site for HK$23.3 billion in 2017.

Henderson said last month that it will be leasing four floors in the tower to UK auction house Christie’s, to be used as the firm’s Asia Pacific headquarters, in the first major tenant deal for the building near the Bank of China Tower and the Cheung Kong Center.

The Henderson is set to be completed in 2023, and the 465,000 square foot tower is expected to generate a fresh surge of leases in Central.

Quayside Remains a Draw

Among leasing transactions recorded in July, Bupa took up 92,500 square feet at The Quayside in Kowloon East’s Kwun Tong district to consolidate the healthcare company’s offices. Just a month earlier, New Media Group had leased 36,400 square feet at The Quayside, a joint venture property completed by Link REIT and Nan Fung Group in 2019.

Another large July lease was signed at Kowloon Commerce Centre Tower B in Kwai Chung, where a tenant took an 11,700 square foot lower-zone space.

The investment market in Central has become more active, JLL said, noting that the whole block of C Wisdom Centre in Central was sold for HK$432 million (HK$18,084 per square foot), while a low-level floor at The Center in Central was offloaded by a local investor for HK$674 million (HK$27,000 per square foot).