New Hong Kong Office Leases Fall 6.7% in H1 as Vacant Space Hits Record High

New leasing volume in Hong Kong’s Grade A office market fell 6.7 percent year-on-year in the first half of 2022 and vacant space hit an all-time peak of 9.8 million square feet (910,450 square metres), as the fifth wave of COVID-19 and geopolitical shocks put many business decisions on hold, according to CBRE.

First-half leasing reached 2 million square feet (185,806 square metres) after slowing in the second quarter to 855,700 square feet, which was down 23 percent from the first three months of the year, the property consultancy said Tuesday in a release. Pre-commitments to upcoming office buildings accounted for 30 percent of leasing volume in the second quarter as COVID curbs hindered inspection activity in April.

Net absorption backslid into negative territory in the quarter, reaching -279,000 square feet amid a wave of downsizing, but remained positive at 185,400 square feet for the year to date. The city’s overall vacancy rate, meanwhile, rose to 11.9 percent at the end of the second half from 11.6 percent at the end of last year.

“As the trend of downsizing and cost-saving continued, vacancy rates in all submarkets increased to double digits in Q2 except for Central, and the total vacant space in Hong Kong hit a record high,” said Ada Fung, executive director and head of advisory and transaction services for office at CBRE Hong Kong.

Occupier’s Market

Greater Central saw the lowest vacancy rate among key office submarkets at the end of the second half at 8.2 percent, up from 7.6 percent at the end of 2021, CBRE said. Kowloon East continued to show the highest reading at 14.6 percent, edging up from 14.5 percent six months earlier.

Overall rents in the second quarter fell by 0.3 percent from the previous three months after a 0.6 percent downturn in the preceding quarter, resulting in a 1 percent year-on-year decline during the first half.

Rents in Greater Central and Kowloon East remained stable and outperformed those in other major submarkets, the agency said. Hong Kong East registered the largest quarterly rental drop at 1.5 percent.

“From the occupiers’ perspective, users will continue to enjoy low rents and creative rental packages due to increased opportunities from new office supply in the following quarters,” Fung said.

Comings and Goings

Local media reported in June that Japan’s Nomura Securities was surrendering an entire floor in Hong Kong’s second-tallest office tower, having terminated its lease for the 26th level at Two International Finance Centre in May.

After handing back the 23,076 square foot floor, Nomura is retaining about half the space it had initially taken up when it leased close to six floors in the tower three years ago, according to Alex Leung, senior director at CHFT Advisory and Appraisal.

The challenges of falling asset values and sliding rents failed to deter Newmark Group, with the New York-based real estate agency announcing in April that it was opening a Hong Kong office to support a team led by former CBRE executive Rhodri James.

In February, local giant New World Development signed an agreement to sell an upper floor of its Grade A office tower at 888 Lai Chi Kok Road in Kowloon’s Cheung Sha Wan area to a unit of local electronics manufacturer PC Partner Group for HK$387.86 million ($49.7 million).