As the Hong Kong office market continues to struggle through street protests and disappearing mainland corporates, an office has been leased in one of Hong Kong’s prime commercial districts at a 30 percent discount from prevailing current market prices, according to a local media account.
Two upper-floor units covering 3,857 square feet (358 square metres) in the Bank of America Tower have reportedly been leased at HK$58 per square foot per month, with the initial asking price for the space standing at $75.
The new tenant will be paying HK$223,706 per month for its new home in the 1977-vintage building in Admiralty district, saving its new occupant around HK$65,569 per month, based on the market price suggested by the local media account.
The reported lease markdown coincides with a flurry of reports released by property consultancy firms last week indicating softening office demand in the Asian financial hub as rents in the third quarter fell by their largest margin in seven years compared to the preceding three month period.
Increasing Weakness in the Office Market
The 42-year-old grade B property, which formerly served as Bank of America’s Hong Kong home, was divvied up and sold off to multiple buyers when the US bank moved out in the early 2000s and no longer counts as prime space, but can still provide an indicator of market trends.
“As a strata-titled building with multiple landlords this may be an extreme case,” said Cushman & Wakefield’s head of research in Hong Kong, Reed Hatcher. “That said, we’re certainly seeing increasing weakness in the broader market and particularly in Central which has been losing tenants to decentralized areas.”
Office availability in Greater Central, which includes Admiralty, hit a 14-year high during the third quarter, rising to 7.4 percent, according to Cushman & Wakefield research. During the same period last year, availability stood at 4.5 percent.
Hatcher said that rents in Greater Central experienced a quarterly drop of 3.2 percent to an average HK$133.7 per square foot per month during the third quarter — the steepest decline on a quarter by quarter basis since 2012.
The decline in rental growth indicates that tenants negotiating new leases may enjoy enhanced bargaining power in the coming months as landlords face rising levels of vacancy and fewer inquiries from potential occupiers.
“The current uncertainty in the market is impacting on market sentiment and we expect that will persist into Q4,” the Cushman & Wakefield analyst said. “For Greater Central, we are forecasting Grade A office rentals to drop by between six percent and eight percent on average for the year.”
32% Decline in Leasing Volume
Hatcher’s comments on the market parallel newly released research by rival firms Savills and CBRE which also indicate a downturn in the city’s office market.
Just four days ago, CBRE reported that gross leasing volume in the Asian financial hub shrank by 32 percent for the period between July and September compared to the previous quarter.
Net absorption stood at 25,400 square feet for the period, the lowest quarterly figure in two years, while large new leases of transactions over 20,000 square feet made a quarterly decline of 49 percent.
CBRE blamed the drop on global economic risks caused by the US-China trade conflict and Brexit, as well as the ongoing social unrest in the city, which were making multinationals cautious about committing to new office space.
Multinationals Taking a “Wait and See” Approach
Also agreeing that Hong Kong’s domestic problems were causing headaches for landlords, Savills’ Hong Kong research team reported that average rental growth in Central dropped during the third quarter for the first time in five years — registering a drop of 1.3 percent.
The firm attributed the decline in the market to a “wait and see” approach adopted by both multinationals and mainland tenants as they weighed up the risks to business continuity.
“Airport disruption and growing concerns for physical safety have helped to mute corporate activity levels,” the Savills team noted.
Among tenants with leases due to expire next year, the agency found that most occupiers were postponing decision-making as they waited for potential political progress before pursuing negotiations.