Swire Keeps Hong Kong’s Pacific Place Near Full Occupancy as Rents Drop 17%

Swire Properties maintained nearly full occupancy at its Pacific Place office towers in Hong Kong’s Admiralty area in the first quarter, but at the cost of 17 percent lower rents.

The Hong Kong-listed developer saw occupancy across its One, Two, and Three Pacific Place office buildings climb 2 percentage points to 98 percent as of 31 March, compared to the same period in 2023, while recording negative rental reversions of 17 percent during the first quarter, according to Swire’s first quarter operating statement released Monday.

The rent reductions at Pacific Place followed a 12 percent negative rental reversion in 2023, with falling demand and oversupply having pulled grade A office rents down 7.5 percent last year, according to Savills. Analysts see the potential for leasing rates to fall still further this year, with older and less well-appointed buildings facing the fiercest challenges.

“We may see some further softening in rents. However, buildings that engage with the end user and provide a broad range of amenities, while being to a good specification, are attracting and retaining occupiers. This will ultimately create an opportunity, over time, for rents to move upwards in the buildings that can deliver on what occupiers are looking for,” said Jonathan Wright, senior director of Hong Kong office strategy and solutions at Knight Frank.

Occupancy Holds Steady

Pacific Place’s 98 percent occupancy comes as headline rents for the One and Two Pacific Place office towers declined to HK$90 per square foot to HK$100 per square foot from HK$100 per square foot to HK$115 per square foot a year earlier.

The complex, which links directly to the Admiralty MTR station through the luxury Pacific Place mall is located just east of Central and 650 metres from the Henderson, a new Zaha Hadid-designed office tower which Henderson Land is set to open the third quarter, with tenants having leased space there for reported rates of HK$100 per square foot.

Occupancy at Swire’s One Island East and One Taikoo Place, the highest-specification office towers in Taikoo Place complex in Quarry Bay also held steady at 93 percent, albeit at 14 percent negative rental reversions, with headline rents falling to the mid HK$50s to high HK$60s range on a per square foot basis in the first quarter, from mid HK$50s to low HK$70s a year ago.

Despite negative rental reversions of 11 percent, the older buildings in Taikoo Place, which include Lincoln House, Dorset House and others, fell to 90 percent from 93 percent one year ago.

The declining occupancy in the older towers come as tenants show a growing preference for new buildings with strong sustainability credentials and more appealing amenities.

“We are seeing buildings of good quality and that are well amenitised achieve and retain strong occupancy levels,” said Wright. “Landlords are increasingly looking at their positioning in order to secure occupiers, and placemaking is increasingly important. We see deal volume increasing at the better buildings in Hong Kong, which is creating a bifurcation of the market.”

Swire’s leadership sees new buildings like the Henderson in Central, and lower prices projects across the harbour in Kowloon East as presenting rivals from both above and below as demand dips city-wide.

“The office market in Hong Kong is expected to remain subdued in 2024, on the back of weak demand and increased availability,” Swire Properties chief executive Tim Blackburn said in the company’s latest annual report. “Increasing competition from Central and Kowloon East will continue to exert downward pressure on rents across our portfolio. However we expect our office spaces, with their industry-leading ESG certifications and excellent amenity provisions, will continue to benefit from the ‘flight-to-quality’ trend.”

Swire Standout

Swire’s performance contrasts with Hongkong Land, the largest office landlord in the city’s Central district, which saw vacancy within its portfolio of 12 grade-A office properties climb to 7.4 percent (6.8 percent on a committed basis) as of December from 4.9 percent a year ago.

London-listed Hongkong Land, which owns office buildings including Exchange Square, Jardine House, and Chater House, also saw negative rental reversions in 2023, having recorded average office rents of HK$106 per square foot last year compared to HK$111 per square foot in 2022.

Overall office vacancy in the Asian financial centre stood at 14.7 percent in December amid net vacancy of 10.3 million square feet, according to Savills, with an additional 8 million square feet of new supply forecasted to come to market between 2024 and 2027.

“Occupiers with sufficient budgets have the option to move to superior quality buildings, taking an advantage for flight-for-quality from the CBD fringe to the CBD. We anticipate grade-A office rental levels to remain under pressure with a drop of at least 2 percent in 2024,” said Fiona Ngan, head of occupier services at Colliers Hong Kong.