Hong Kong Office Market Shrank Again in August as Leasing Stays Weak

Occupiers in Hong Kong’s Grade A office market gave up 29,200 square feet (2,713 square metres) more than they leased in August as the city’s overall vacancy rate remained flat at 9.6 percent, according to JLL.

The vacancy rate in the prime Central district edged up to 8.4 percent from 8.2 percent in July but remained the lowest among the city’s key submarkets, the property consultancy said in its latest Market Monitor report. Kowloon East’s vacancy rate eased to 12.5 percent from 12.6 percent as the area continued to record the highest rate of empty space.

Overall net effective rents fell by 0.3 percent in August from the previous month to HK$56.80 (now $7.24) per square foot per month, said executive director of research Nelson Wong.

“Among the major office submarkets, rentals in Central and Wan Chai/Causeway Bay dropped by 0.4 and 0.3 percent, respectively,” Wong said. “But rents in Tsim Sha Tsui rose by 0.1 percent. We believe the office rents will remain stable in the next few months.”

CICC Stretches Out

August’s most noteworthy leasing deal was struck by mainland banking giant China International Capital Corporation, which took up 47,500 square feet across one and a half floors at Sun Hung Kai Properties’ International Commerce Centre in Kowloon as part of an in-house expansion.

CICC is said to be paying HK$75 per square foot per month for its new space in the 118-storey tower at 1 Austin Road, local media reported. The deal took place about one year after the bank reportedly paid HK$130 per square foot to add 53,000 square feet to its existing footprint at One IFC in Central as part of an expansion at that same building.

“Demand for office space in Hong Kong remains resilient, in particular the demand from PRC companies,” said Alex Barnes, managing director at JLL in Hong Kong. “Figures from JLL’s research department show about 12.1 percent of the new letting related to PRC firms in the first half of 2022, compared to 3.6 percent in the first half of 2021.”

The agency expects office leasing activities to improve once the Hong Kong government removes COVID-19 quarantine requirements, with Chief Executive John Lee on Friday having announced a partial rollback scrapping mandatory hotel quarantine from Monday.

In the investment market, Edwin Leong’s Tai Hung Fai Enterprise in August sold one low-zone floor at the South China Building in Central to Shanghai Fraternity Association Hong Kong for owner occupation at a consideration of HK$120 million, or HK$29,176 per square foot of gross floor area.

Deepest Downcycle

In a separate report, CBRE remarked that citywide occupied space in Grade A offices fell by 2.3 million square feet in the three-year period from March 2019 to March 2022 to reach 73 million square feet.

By square footage, logistics/trading, professional services (ex legal) and banking/finance saw the biggest net contraction in total occupied space during the three years. By percentage, logistics/trading and professional services (ex legal) had the largest footprint reduction, down 11.8 and 14.4 percent respectively, while banking/finance trimmed its footprint by just 2.8 percent.

“We have seen declines in overall new and expansionary demands, but positive signs from legal, real estate, healthcare industries and government departments,” said Marcos Chan, executive director and head of research at CBRE Hong Kong. “These industries are less affected by economic downturn and have been the key countercyclical growth drivers for the past three years. Moving forward, some of these industries will continue to see faster business growth, driven by structural changes in the economy.”