Just two years into a four-year lease, online travel giant Expedia is said to be surrendering its 25,000 square foot (2,322 square metre) office in The Center in Hong Kong, after the company in February announced layoffs of 3,000 staff globally.
The company is giving up on its HK$1.75 million ($225,799) per month lease some two years before it is set to expire in June 2022, according to a report in the Hong Kong Economic Times, as the city’s recession continues to deepen. Before the reported reduction in force, Expedia had 106 staff in Hong Kong, according to a report in the South China Morning Post, with cuts in the region said to focus on the city, and its competitor to the south, Singapore.
Rumors of Expedia’s intent to find an alternative to its full floor location in one of Hong Kong’s priciest office towers were making the rounds even before the pandemic began earlier this year, an industry source said. A representative from Expedia declined comment.
While the company’s stock is still recovering after falling from just over $135 per share last November to below $46 at the low point of the pandemic-induced recession, it is paying around HK$70 per square foot per month for its office on Queen’s Road in Central — where just one year ago office rents ranked as the most expensive globally at more than 40 percent over the rates charged in London’s West End.
Surrenders Come into Style
Should the online travel agency arrange a flight out of its office in Central, it would fit into what brokerage analysts say is a growing trend in Hong Kong.
Data from Cushman & Wakefield shows that grade A office surrenders have skyrocketed as the coronavirus pandemic has rocked the city’s already-struggling market. Since the agency began tracking space surrendered by tenants in the third quarter of 2019, the amount of space given up has jumped from 317,000 square feet in the third quarter to 329,000 square feet in the last three months of 2019. During the first quarter of 2020, that number climbed to 372,000 square feet – around 15 percent above the level recorded from July through September.
With the second quarter of 2020 still in progress, Cushman & Wakefield’s head of research for Hong Kong, Reed Hatcher, said 505,000 square feet had been surrendered by tenants in Hong Kong from the beginning of April through the end of May. That number for the partial period already exceeds by 47 percent the amount of space handed back to landlords during the third quarter of 2019.
Returns, Abatements and Reductions
Reached for comment Tuesday, analysts gave differing opinions on the future outlook for Hong Kong.
Thomas Lam, head of valuation and advisory at Knight Frank in the city, said the slow return to “normal economic activity” in Hong Kong has brought a higher level of sale and leasing activity in the office market compared to recent months. Despite the churn, Lam remained confident that the outlook for the office market in Central district, traditionally the hub of commerce in Hong Kong, remains positive in the long term, due to the limited future supply.
“I believe most tenants are looking for cost saving plans, but not essentially downsizing, which include surrender of the existing space, rental abatement or lease restricting to ease their financial pressure,” Lam said. “But rental reductions were seen mainly for office tenants with a retail presence and were implemented only on a case-by-case basis.”
A spokesperson for CBRE, which earlier had projected a 15 to 20 percent decline in Hong Kong office rents this year, said that the company’s forecast already takes into account potential returns of office space.
Rents Hit 14-Year Low
Expedia’s potential exit from the Center comes as a tougher economy, exacerbated by the COVID-19 pandemic and concerns over political strife, have dampened demand for the world’s priciest office space.
Hong Kong office rents plummeted to 14-year lows during April, according to the most recent monthly data from JLL.
In its 20 May report, the property consultancy noted that, as businesses sought smaller and more affordable options, Hong Kong’s grade A office market in April saw rents slide to HK$65.90 per square foot per month — down 3 percent from March. Figures from Colliers International show that rents in April fell to their lowest price since May 2006.
“Companies with near term lease expiries are considering lower cost options, with a number of decentralised relocations,” said Alex Barnes, JLL’s head of markets in Hong Kong. “Businesses carrying surplus space are trying to realise potential cost savings by downsizing or disposing of extra office.”