Hong Kong Still Asia’s Most Expensive City as Office Rents Top Tokyo by 56%

Hong Kong retains its crown as Asia’s most expensive commercial real estate market even after the Covid-19 pandemic saw the city record the region’s steepest decline in prime rents over the first six months of the year, London-based real estate broker Savills said on Tuesday.

The pandemic dragged down office rents in the city by 12 percent during the first six months of this year, compared to the same period in 2019 as companies downsized or held off on signing new leases in the face of Hong Kong’s economic slide.

Despite depressed demand, average monthly office rents in Hong Kong stood at $267 per square metre at the end of June, Savills said in the latest edition of its Prime Benchmark report, which tracks prime rents across the Asia Pacific.

That makes desk space in the city some 56 percent more expensive than prime rents in Tokyo, which took second position for office space, and 2.7 times more than in Singapore, which took the third slot.

Office rents in Hong Kong are likely to decline further, said Simon Smith, senior director of research and consultancy at Savills. “Corporate solvency is the issue,” he said. “The sting may be in the tail.”

Vacancy rates in Hong Kong’s Central business district rose to 5.6 percent in July, according to JLL, with tenants afflicted by 2020’s economic woes having surrendered more than 460,000 square feet of space to landlords — some 35 percent of the cancelled leases city-wide.

Retail Market Tumbles

Retail rents fell even more quickly in the Asian financial hub, tumbling 19 percent in the first half compared to a year ago as the city halted international flights and enforced social distancing measures to curb the further spread of the coronavirus and shuttered shopping malls that were already reeling from the impact of social unrest in the past year.

Despite the rental decline and the sight of a number of international chains fleeing the city’s famously pricey shopping strips in recent months, retail properties in the city are still the most expensive in Asia.

At monthly rents of $834.6 per square metre, prime shopping malls in Hong Kong cost twice as much as those in Singapore and are 59 percent pricier than those in Tokyo, according to Savills.

Falling demand for space in Hong Kong has already taken a toll on the city’s real estate companies. Hongkong Land, the biggest landlord in Central, reported a 24 percent decline in underlying profit in the first half.

Hotels Bore Brunt of Pandemic

Hotels were the hardest hit by the pandemic as countries closed their international borders after the coronavirus started to spread around the world in February. Average room rates across the region plunged 34 percent in the first half, with those in Hong Kong, Kuala Lumpur and Manila recording the sharpest decline, according to Savills.

Average room rates are unlikely to recover anytime soon as travel restrictions remain in place and companies reduce business costs by cutting back on business trips, Smith said.

Japan was the most expensive travel destination, with average hotel rooms in Tokyo going for $648 per night and those in Osaka available for $369. Singapore was the second-most expensive location, with hotels in the Lion City averaging $441 per night.

Hong Kong also topped the charts for luxury apartments leases, with posh pads in the city averaging $99.3 per square metre in the first half. That’s almost three times as much as those in Singapore and 23 percent pricier than those in Tokyo.

Luxury apartments rents across the region have also fallen amid surging unemployment, with Kuala Lumpur, Shanghai and Singapore recording the sharpest decline in rents.