
Central district office rents are coming off their dizzying heights
The grade A office rental market in Hong Kong showed signs of further softening in November, with several major real estate services firms in agreement that leasing demand would continue to dissipate on the back of a declining economy, rising interest rates and trade tensions between the United States and China.
Global property group JLL said in its Property Market Monitor this month that Hong Kong prime office rents increased just 0.3 percent in November — the third straight month that rental increases had slowed, following the 1.0 percent growth in September and the 0.5 percent increase in October. It said rental rates in the Wanchai/Causeway Bay area rose the most of any area, increasing 0.7 percent on a month-over-month basis.
In addition, the consultancy said, 58,700 square feet of space was returned to the market during the month as grade A occupiers actually took up less space than they vacated during November. With multinationals and other companies continuing their decentralisation drive away from Central district and toward less pricey areas, Tsim Sha Tsui, Kowloon East and the Eastern corridor of Hong Kong showed the least amount of space returned, JLL said.
Deeper Cuts Coming?
JLL had said earlier this month that it expected Hong Kong office rents to grow anywhere from 0 percent to 5 percent in 2019, but the sharp in slowdown in November could point to a deeper gouging of the rental market than expected. Other analysts have predicted declines in the Greater Central district — Central, Admiralty and Wanchai — of as high as 6 percent for next year.
Grade A office vacancies in Central stayed at 1.5 percent as of the end of November, the same rate as at the end of October, JLL said.
JLL also said investment volumes in Hong Kong “remained subdued amid ongoing economic uncertainty and the potential for further interest rate hikes.” It said the most notable sales transaction was at China Merchant’s Tower in Sheung Wan, where the 18th floor sold for a reported HK$680 million, or HK$26,321 per square foot, which was the highest lump sum payment ever for a floor in the building.
“With the yield expectations of buyers rising and vendors remaining firm on asking prices, this trend will continue in the short run,” JLL said.
Global Anxieties Rattling Market

The US-China trade war has had a “visible impact” on office leases in Kowloon, Knight Frank said
Real estate services firm Knight Frank also said the office leasing market in Hong Kong would be tepid on mounting global economic anxieties and fallout from the US-China trade war. In its Hong Kong Monthly Report, Knight Frank said the trade war had had a “visible impact” on office leases in Kowloon in particular.
Noting that sentiment about the office market “is weak,” Knight Frank said rents “will continue to be under pressure as leasing activity remains unrestrained,” although it also noted that now is traditionally the low season for office leasing activity.
Leasing activity in Kowloon had decreased about 20 percent compared with other years, Knight Frank said, with the market there looking “murky” as the “largely trade-related occupiers in Kowloon are watching the Sino-US negotiations closely.”
Knight Frank said it projects Central district office rents to drop by 5 percent in 2019 on dampened demand and decentralization, although it said rents in non-core areas would be supported by the relocations.
C&W Sees Negative Office Absorption
A third property firm, Cushman & Wakefield, also pointed to a muted office leasing market — and property market as a whole — headed into the new year.
Cushman & Wakefield said net absorption of Hong Kong’s office market in the fourth quarter was -11,744 square feet — the first time the figure has been in negative territory in two years.
It said average Grade A office rents in the “Greater Central” area of Hong Kong increased by just 0.2 percent on-quarter to HK$138.2 per square foot per month, while “Prime” Central district rents were HK$164.8 per square foot per month. It also pointed to increased take-up in non-Central locations, with rents rising 2.3 percent in Hong Kong East and by 6.7 percent overall in Hong Kong on-quarter.
Rents in Central district, it said, “were not negatively impacted,” but, C&W added, “cost-sensitive occupiers will continue to be attracted to the choice, quality and value offered in Kowloon East (13.0 percent vacancy) and Hong Kong South (11.1 percent).”
C&W also said the co-working sphere, which was a “significant source” of office space demand the past year, is also expected to slow in 2019 amid a more cautious business environment.
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