Hong Kong Office Leasing Rebounds in Q3, Driven by Island East Deals, Flex Space Trend

Office leasing in Hong Kong rebounded in the third quarter, with tenants leasing more space than they vacated during the period, thanks in part to tenants shifting to the Quarry Bay area and continuing demand from flexible workspace operators, according to Cushman & Wakefield.

Occupiers leased 183,000 square feet (17,001 square metres) more than they gave back in the July-September period, compared with a contraction of 176,900 square feet in the preceding three months, the property consultancy said in its latest leasing report.

While overall demand for offices remained sluggish, commercial hubs with new project completions — namely Hong Kong East, Hong Kong South and Kowloon East — saw their leasing markets grow during the quarter.

“There were quite a few notable office completions this quarter, including Two Taikoo Place in Hong Kong East, which had witnessed relatively strong pre-commitment, pushing the submarket’s quarterly net absorption to 348,000 square feet,” said John Siu, managing director and head of project and occupier services for Hong Kong at Cushman & Wakefield.

Quarry Bay Bounce

Swire Properties’ Two Taikoo Place scored two of the third quarter’s biggest leasing deals, with Sumitomo Mitsui Banking Corporation taking up 41,200 square feet of net floor area as part of the Japanese finance giant’s relocation from One International Finance Centre in Central. In addition, the Financial Reporting Council agreed to take up 31,100 square feet at the Quarry Bay tower, which is scheduled to open by the end of 2022.

Other sizeable new leases in Hong Kong East included Big Four accounting firm Deloitte renting 21,400 square feet at 12 Taikoo Wan Road, which was known as Cityplaza 4 until Swire sold the tower to an investor group led by Gaw Capital in 2018, as well as the Hong Kong government setting up a 25,300 square foot office at the AIA Tower in North Point.

Across the harbour in Kowloon, China International Capital Corporation leased one and a half floors at Sun Hung Kai Properties’ International Commerce Centre, filling space vacated by Deutsche Bank as the German giant trims its global footprint.

Flex space heavyweights continued their year-long expansion in the third quarter, as IWG’s Signature by Regus leased 24,300 square feet at the International Commerce Centre and The Great Room by Industrious hired 21,000 square feet at Cheung Kong Center in Central. Flex operators have taken up at least 160,000 square feet to date in 2022, paced by IWG’s Spaces occupying all 18 floors of Swire’s 8 Queen’s Road East in Wan Chai.

“Core submarkets recorded several leases via flex space expansions in recent months, with more businesses looking for flexible lease terms and lower capital expenditure amid a market facing economic uncertainty and interest rate hikes,” Siu said. “We expect to see this trend remain in 2023.”

Slow Progress

The general uncertainty of the local market has contributed to occupier reluctance in committing capital to traditional office space, said Jonathan Wright, senior director of Hong Kong office strategy and solutions at Knight Frank. As a result, the shorter-term deals available with flex space operators have led to an upswing in demand.

“The flexible workspace sector isn’t all rosy,” Wright told Mingtiandi. “While demand from occupiers is up, desk prices, like the rest of the market, remain subdued. However, landlords must offer this product to occupiers and therefore careful consideration needs to be given to deal structures.”

In terms of conventional office deals, the fourth quarter is off to a promising start after two of Hong Kong’s biggest developers on Monday announced new leases by global finance giants.

Sun Hung Kai Properties revealed that UBS will be the first anchor tenant of SHKP’s development atop the high-speed rail terminus in West Kowloon, with the Swiss bank consolidating its Hong Kong operations in 250,000 square feet of space across the top nine floors of the project’s tallest tower.

Hongkong Land said US-based fund manager Invesco will relocate from Champion REIT’s Three Garden Road to Jardine House in Central, taking up 33,000 square feet in the high zone of the 1972-vintage tower. The new lease, effective from 1 November, marks Invesco’s return to the Hongkong Land Central portfolio after having previously occupied two floors at Three Exchange Square.