Hong Kong’s office market showed signs of revival after a prolonged slump as more tenants leased fresh space than gave up old offices for the first time in two years.
Net absorption of Grade A space in the world’s most expensive office location totalled 327,700 square feet (30,444 square metres) during the three months ending 30 September, the first positive take-up since the same quarter in 2019, according to Cushman & Wakefield.
After relatively low levels of tenant movement in the second quarter, the third quarter witnessed a resurgence of transaction activity, said Keith Hemshall, Cushman & Wakefield’s head of office services for Hong Kong, with that rebound led by banks, insurers and business centre operators.
“As a result, the amount of office space being surrendered dropped 12 percent quarter-on-quarter, equating to a reduction of 62,000 square feet in total,” Hemshall said.
Central Rents Still Slipping
As a result of the reanimation of demand, the local market’s ongoing rental decline eased in the quarter as citywide office rents averaged HK$55.90 ($7.19) per square foot per month, down 1.2 percent from the previous three months, following a 1.4 percent slide in the preceding period.
Office rents have fallen 4.5 percent in the year to date, the property services firm said Tuesday in a release.
In Prime Central, which Cushman & Wakefield defines as a set of 12 key office buildings in the main business district, third-quarter rents dipped 0.8 percent from the previous period to an average of HK$113.10 per square foot per month. In Greater Central, which comprises Central district along with Admiralty and the Sheung Wan area just west of the primary hub, the average was HK$96.80, down 0.6 percent from the second quarter.
Among all submarkets, Greater Tsim Sha Tsui saw the biggest quarterly decline, with the average rent tumbling 2.6 percent to HK$49.70. Kowloon West, meanwhile, was the only submarket to experience quarterly growth, with the average rent inching up 0.5 percent to reach HK$34.80.
Leasing activity revived in various areas across Hong Kong amid rising demand for business centres and co-working space, said John Siu, Cushman & Wakefield’s managing director for Hong Kong. The citywide availability rate decreased slightly to 13.9 percent and is expected to remain stable in the fourth quarter.
“However, significant new supply of 2.75 million square feet launching into the decentralised submarkets in 2022 will raise the upcoming availability,” Siu said.
Banks, Biz Centres Stretch Out
Banking and finance firms led the pack in third-quarter leasing transactions, accounting for 27 percent of square footage (up from 22 percent in the second quarter), followed by insurers at 15 percent (down from 21 percent) and business centres/co-working spaces at 12 percent (up from 2 percent), according to Cushman & Wakefield research.
Among the largest transactions in Central, China International Capital Corporation leased 45,100 square feet at One International Finance Centre as part of the banking giant’s in-house expansion at One IFC, reportedly for HK$130 per square foot per month, while financial group Amber Hill took up 24,156 square feet at Two IFC.
HashKey leased a full floor spanning 10,150 square feet at Hongkong Land’s Three Exchange Square, reportedly for HK$120 per square foot, becoming the first crypto firm to hang its shingle at Exchange Square, traditionally the home of blue-chip investment banks and white-shoe law offices.
At 28 Stanley Street, The Executive Centre expanded operations with a new lease of 47,100 square feet. The flexible office operator now occupies the first 25 floors of the building near Central MTR station. Further east in Causeway Bay, Compass Offices added 26,500 square feet of flexible space at Hysan Development’s Lee Garden 1 & 2.
Emerging Hubs Maintain Appeal
In its October office leasing report, Savills Hong Kong noted that the third quarter’s biggest new lettings beyond the CBD included Bupa signing up for 92,500 square feet at The Quayside in Kowloon East’s Kwun Tong district to consolidate the health insurer’s offices, as well as Centaline Property Agency relocating from Central to take up 60,000 square feet at Wharf T&T Centre in Tsim Sha Tsui.
“As Central’s rental premium over the rest of the market narrows, decentralised rents may in turn come under pressure,” said William Yiu, deputy senior director for Kowloon office leasing at. “Looking ahead, during a period of uncertain economic prospects and elevated supply, a lot will depend on demand from PRC firms over the next 12 to 24 months.”