Hong Kong Office Rents Set to Slide as SG Market Keeps Climbing

Rents in the world’s costliest office market, Hong Kong, may fall for the first time in four years during 2019, as a tanking stock market, rising interest rates and the US-China trade war weigh on sentiment in the financial hub, Colliers International forecast in a report released this week.

The prediction of a slide in the Hong Kong market was published within days of the property services company noting in a separate report that office rents in Singapore’s core business district are on track to register 14 percent growth for the full year of 2018 — the fastest pace of increase since 2010 — as the Southeast Asian financial hub experiences tightening vacancy and braces for a drop-off in new office projects between now and 2022.

Finance Woes Set to Hit Hong Kong Office Market

Pressure on the financial sector is among the headaches facing Hong Kong landlords, with Colliers noting that the city’s office rent levels correlate more closely with stock index performance than in any other location in Asia.

“Financial stocks have a 48 percent weighting in the Hang Seng Index, while financial tenants occupy 54 percent of Grade A office space in the CBD,” the report noted. The Heng Seng Index has dipped more than 20 percent this year, giving the brokerage cause for its forecast of a 3.8 percent drop in rents in the city’s core business districts in Central and Admiralty during 2019.

Central, which has reigned as the world’s most expensive place for renting office space for three straight years, commanded average office rents of $307 per square foot per year, according to date from CBRE, a rate almost a third higher than the average of $235 per square foot per year in London’s West End, which ranked second in a recent survey of the world’s most expensive office locations.

Singapore Office Rentals Set to Climb 8% in 2019

Hong Kong’s cool-down comes just as Singapore’s office market is heating up again after an earlier surge in supply had tamped down rates.

Average gross effective rents for Singapore CBD Grade A buildings, on the other hand, stood at S$9.20 per square foot per month in by the end of the third quarter of this year, with the agency anticipating a full-year increase in rental rates of 14 percent in 2018.

The jump in office rents was the first double-digit annual growth in city office costs since 2011 and the fastest pace of increase since 2010, and Colliers expects a further increase in rental rates of eight percent in 2019.

“We expect the steady upward rental trend to persist over the next two years, with average rent rising an estimated eight percent year-on-year in 2019, and a further five percent year-on-year over 2020, Tricia Song, Colliers’ head of research for Singapore said in a statement.

Projects in top-tier Singapore business locations such as Raffles Place and the city’s New Downtown around Marina Bay are already fetching S$11 per square foot per month, Colliers found.

Drop Off in New Supply Hits SG Market

The company expects the pipeline of new prime office projects in Singapore to taper significantly over 2019-2021, with new supply averaging 0.57 million square feet (53,000 square meters), or two percent annual growth in available stock, in contrast to 10 percent growth in new office supply in 2017.

Awareness of the imminent office supply drought prompted a series of consolidation and relocation activity by multinational corporations in the past quarter, Colliers said. SK Group took the opportunity to consolidate all its entities to Marina One East Tower, while Nomura brought one of its entities from Suntec Tower 5 into its headquarters at Marina Bay Financial Center Tower 2.

Separately, Wills Tower Watson leased 32,000 square feet (3,000 square meter) at One Raffles Quay, bringing together its operations currently across two locations.

Flexible office providers in particular grew their footprint in Singapore by 680,000 square feet in 2017, according to the brokerage, as WeWork, Spaces and Campfire all leading the way in Singapore this year.

So far, Hong Kong-based Campfire has notched the city’s largest deal this year, leasing out 85,000 square feet at 139 Cecil Street between Raffles Place and Tanjong Pagar MRT stations.