Hong Kong Office Market Continues to Contract in Q2 as Reopening Disappoints

Occupiers in Hong Kong’s Grade A office market gave back 172,700 square feet (16,044 square metres) more than they took up in the second quarter of 2023, mainly due to downsizing by multinational companies in Tsim Sha Tsui and Central, according to Cushman & Wakefield.

The negative absorption still marked an improvement from the net 248,200 square feet given back in the first three months of the year, the consultancy said Thursday in a release. The overall vacancy rate edged up to 17.3 percent from 17.1 percent in the first quarter, putting pressure on Grade A office rents, which are down 3.6 percent in the year to date.

With leasing activity by mainland enterprises in Hong Kong failing to meet expectations after the border reopening in February, a significant rebound in the office market has yet to materialise, Cushman & Wakefield said.

“In terms of new leasing transactions, the share of new transactions by area across business sectors was distributed more evenly in Q2,” said John Siu, managing director and head of project and occupier services for Hong Kong at Cushman & Wakefield. “While the banking and finance sector still accounts for the largest share of newly leased space (25 percent), the medical/health/beauty, consumer products/manufacturing and insurance sectors have each contributed more than 10 percent.”

Rent Rebound in Doubt

In its first-half review of the Hong Kong office market, Cushman & Wakefield said average rents saw their biggest year-to-date drop in Hong Kong East, falling 6.4 percent to HK$41.40 ($5.29) per square foot per month in the area that includes North Point, Quarry Bay and Taikoo Shing.

In Prime Central, defined as 12 key office buildings in the central business district, rents slid 3.6 percent in the year to date to HK$102.50, while in Greater Central, which includes Admiralty, Central and Sheung Wan, they fell 3.7 percent to HK$88.60.

In Greater Tsim Sha Tsui, the commercial hub comprising Tsim Sha Tsui, Tsim Sha Tsui East, Hung Hom and Kowloon Station, office rents dipped 3.9 percent to HK$44.50.

Office rents for all districts averaged HK$50 at the end of the first half, down 34 percent from their all-time peak of HK$75.90 in April 2019.

Among the largest leasing transactions in the second quarter, banking giant Citi took up a further 28,500 square feet of net floor area at Champion REIT’s Three Garden Road in Central, while insurer FWD rented 49,000 square feet at Swire Properties’ Devon House in Taikoo Place and 11,200 square feet at Swire’s Two Pacific Place in Admiralty.

Siu noted that several large new office buildings are expected to be completed in the second half, adding to existing high availability and hindering any rebound in office rents.

“With the recent signs of improving Sino-US relations, it is expected that the gradual return of the economy and cross-border activities will support business confidence and expansion plans, which could aid the office market to recover,” Siu said.

Muted Retail Recovery

In a report released Friday, Savills said Hong Kong’s post-reopening retail recovery has been slower than anticipated thus far.

Second-quarter rents at prime street shops and major shopping centres rose by 1.4 and 0.9 percent, respectively, compared with levels in the January-March period, the consultancy said. Luxury retailers benefited the most, with sales reaching 70 to 80 percent of pre-COVID levels during the Labour Day Golden Week, while other market segments remained subdued.

“Retailers who committed spaces during the quarter were mainly testing the market,” said Jack Tong, director of research and consultancy at Savills Hong Kong. “Meanwhile, many retailers were still cautious in making their moves, in particular into core retail areas, before they can see concrete evidence of a full retail market recovery.”