Hong Kong Office Vacancy Climbed to 9.6% in July

Vacancy in Hong Kong’s Grade A office market rose in July, as low-season supply expanded and headwinds from rising coronavirus cases dragged on the market and thwarted any easing of tight border restrictions.

The overall vacancy rate rose to 9.6 percent in July from 9.4 percent in June as several sizeable spaces became available, according to JLL’s latest Hong Kong Property Market Monitor released on 26 August.

The rate had eased to 9.3 percent in May from 9.5 percent in April, snapping a two-year streak of rising vacancies.

The vacancy rate in Central edged up to 8.2 percent from 7.9 percent. The rate for Wanchai and Causeway Bay rose to 9.5 percent from 9.0 percent, and that of Tsim Sha Tsui to 11.1 percent from 10.2 percent. However, Kowloon East’s vacancy rate fell to 12.6 percent from 12.8 percent.

Broker Optimism Unbroken

“We believe leasing activities will improve in the next few months,” said Alex Barnes, managing director at JLL, cautioning that Hong Kong’s stringent border controls were a continuing dampener.

“It would bring breakthrough demand to the office leasing market if the local government removed quarantine completely,” he added.

Major landholders such as Hongkong Land and Jardine Matheson said COVID-19 not only affected new office leasing enquiries but also resulted in the groups providing rental support to some retail tenants.

Swire Properties agreed that the overall office market has remained soft due to the effects of COVID-19, but there had been a “trend for prospective tenants to upgrade their premises and prioritise sustainability and wellness”.

Although the fifth wave of COVID-19 in Hong Kong has ebbed, there has been a sharp increase in new infections in recent days. The city recorded 8,579 new cases on 25 August — the highest one-day tally since 27 March.

“The infection figure has increased by nearly 2,000 per day in the recent two to three days… to more than 8,000,” Albert Au of the Centre for Health Protection said.

While businesses have clamoured for a relaxation of COVID-19 restrictions to kickstart tourism and the wider economy, Au said on 25 August that the government was considering tightening social distancing rules as cases rose.

COVID Infects Office Market

The fifth wave has hit the property sector hard. New leasing volume in Hong Kong’s Grade A office market fell 6.7 percent year-on-year in the first half of 2022 and vacant space hit an all-time peak of 9.8 million square feet (910,450 square metres), as COVID-19 and geopolitical shocks put many business decisions on hold, CBRE said in July.

The Grade A office market recorded net absorption of 217,000 square feet (20,160 square metres) in July due to the completion of a government building in Kai Tak, JLL said, referring to the site of Hong Kong’s former international airport.

In a notable expansion, Hong Kong-listed management consulting firm Far East Horizon leased 10,100 square feet (940 square metres) of gross floor area at the International Commerce Centre in West Kowloon for in-house expansion. Serviced office operator IWG also expanded by leasing another 33,000 square feet (3,000 square metres) in the same building.

Nelson Wong, JLL executive director of research, said Grade A overall net effective rents dropped further by 0.1 percent month-on-month in July, having fallen by the same amount in June.

“Among the major office submarkets, Central and Wanchai/Causeway Bay’s rents registered a marginal decline of 0.1 percent and 0.2 percent, respectively, while rents in Tsim Sha Tsui rose by 0.3 percent,” Wong said.