Hong Kong Office Market Begins Recovery as Rent Cuts Slowed in 2021 2H

Hong Kong’s office leasing market shook off a sluggish first half of 2021 as tenants rediscovered their appetites for desk space, although average rents still suffered a full year decline after a steeper drop in 2020, according to research from Cushman & Wakefield.

Tenants of Grade A office space leased 185,500 square feet (17,234 square metres) more than they gave up in the fourth quarter and a net 513,000 square feet in the second half, with space leased by tenants dropping by 578,700 square feet this year, the property services firm said in its 2021 review of the market in Hong Kong and the Greater Bay Area.

While still negative, the full-year figure is a vast improvement from the 2.3 million square foot contraction seen in 2020. Rent cuts similarly moderated, with average rates for grade A space in the city falling 4.7 percent year-on-year in 2021 after a 19.3 percent plunge last year.

“The banking and finance sector, and insurance industry, dominated new leasing transactions, with a total share of 42 percent,” Cushman & Wakefield said.

Central Finishes Strong

Rents in Central, Hong Kong’s chief business district, finished the year on an upbeat note. In Prime Central, defined as a set of 12 key office buildings, rates in the fourth quarter rose 0.6 percent on average compared to the previous three months, to reach HK$113.70 ($14.57) per square foot per month. In Greater Central, which includes Admiralty and Sheung Wan, average tariffs edged up 0.3 percent to HK$97.10.

Through the first eleven months of the year, rents in the city’s traditional commercial core were still down 4.7 percent with Greater Central sliding by 4.1 percent so far in 2021.

In a visible sign of the recent turnaround, surrendered office space in Asia’s longtime financial capital totalled 367,000 square feet in the last three months of 2021, down 49.3 percent from the peak of 724,000 square feet handed back to landlords by tenants in this year’s first quarter.

Cushman & Wakefield credited Hong Kong’s improving economic environment with helping to reduce overall office availability to 13.6 percent in the fourth quarter from 14.4 percent just six months earlier. But the agency’s head of office services in the city, Keith Hemshall, said the trend could be short-lived.

“With the completion in 2022 of over 2 million square feet of new Grade A office space in Two Taikoo Place in Hong Kong East, 98 How Ming Street in Kowloon East, and Airside atop Kai Tak MTR station, we expect overall availability to increase to 16 to 17 percent by the end of the year and accordingly, for average rents to drop by 1 to 3 percent,” Hemshall said.

Cushman & Wakefield predicts a net take-up of 300,000-500,000 square feet next year as the anticipated reopening of the border with mainland China drives economic growth and demand for office space.

City Stirs to Life

Financial firms, insurers and business centre operators propelled Hong Kong’s office leasing in the second half of 2021, and Cushman & Wakefield foresees those sectors continuing to drive the market.

The half’s notable deals included Apollo Global Management’s October take-up of a 13,900 square foot upper floor at Hongkong Land’s One Exchange Square, where the US-based fund manager is paying roughly HK$120 per square foot in monthly rent. The firm founded by Leon Black is relocating within Central from its current home at the Hong Kong Club Building on Chater Road.

Further east on the island in Causeway Bay, flexible office operator IWG leased two floors spanning 23,400 square feet of gross floor area for a new Spaces centre at Tower 535, taking over part of rival WeWork’s former Hong Kong flagship location.

In September, China International Capital Corporation leased 45,100 square feet at One International Finance Centre as part of the banking giant’s in-house expansion at One IFC, reportedly for HK$130 per square foot per month, while financial group Amber Hill took up 24,156 square feet at Two IFC.

At 28 Stanley Street, The Executive Centre expanded operations with a new lease of 47,100 square feet. The flexible office operator now occupies the first 25 floors of the building near Central MTR station. Further east in Causeway Bay, Compass Offices added 26,500 square feet of flexible space at Hysan Development’s Lee Garden 1 & 2.

In July, health insurer Bupa took up 92,500 square feet at The Quayside in Kowloon East’s Kwun Tong district to consolidate its offices, and in June, financial services company Citadel leased 23,960 square feet at Two International Finance Centre while The Executive Centre leased 15,700 square feet in AIA Central on Connaught Road in Central.