Hong Kong Office Leasing Ended Two-Year Contraction in May

Hong Kong’s office leasing picture brightened in May as tenants occupied more Grade A space than they had in the previous month for the first time since July 2019, according to a report released by JLL.

Absorption of top-grade offices expanded by a net 116,300 square feet (10,805 square metres) last month, with that upbeat reading signalling a sharp turnaround from the property consultancy’s estimated net withdrawal of 99,400 square feet in April and 100,500 square feet in March.

“Occupiers have started to resume real estate decision-making in recent months as business confidence builds in Hong Kong,” said Alex Barnes, head of agency leasing at JLL in Hong Kong. “We believe that the worst period for the office leasing market has passed and rental fall will moderate in the second half of the year for most core markets.”

That upturn included a recovery in the city’s most expensive district, with the vacancy rate in Central falling from a record high of 7.5 percent in April to 7.2 percent at the end of last month as leasing volume ramped up, JLL said in its Hong Kong Property Market Monitor.

Central’s Resilient Rents

Average monthly office rents in the city fell to HK$56.30 ($7.25) per square foot in May from HK$57.10 the month before, a 1.4 percent drop, as landlords showed a willingness to lower asking rents to entice new tenants.

Among the major office submarkets, Tsim Sha Tsui experienced the biggest decline in rents while those in Central were relatively more resilient, the report said.

The city’s overall office vacancy rate eased to 9.4 percent in May from 9.5 percent in April. Four of the five submarkets surveyed by JLL had declining vacancy rates, with only Tsim Sha Tsui seeing an uptick to 10.9 percent from 10.6 percent the month before.

Notable sales transactions included a high-level unit at 9 Queen’s Road Central that went for HK$126 million (HK$45,000 per square foot) and a mid-level unit at The Center that changed hands for HK$72.8 million (HK$33,471 per square foot).

Flex and Food

JLL noted that some corporate tenants have been taking advantage of the slide in rents to relocate to higher-grade locations as average leasing rates have now fallen by more than a quarter from their 2019 peak.

Among the more significant leasing transactions in May, flexible workspace provider The Executive Centre reportedly took up a floor with a lettable area of 15,800 square feet at AIA Central.

In Causeway Bay, food delivery company Foodpanda is said to have leased two levels with a gross floor area of 39,000 square feet at The Wharf’s Times Square.

Other leases inked last month included 15,500 square feet in the high zone at 181 Queen’s Road Central, 18,800 square feet in the high zone at China Evergrande Centre in Wan Chai, and 18,000 square feet in the mid zone at Gateway Tower 2 in Tsim Sha Tsui.