Hong Kong Office Market Steadies in April After COVID Curbs Relaxed

Hong Kong’s office leasing market stabilised in April with rental and vacancies flat as authorities relaxed restrictions as a surge in coronavirus cases eased, according to JLL.

In the consultancy’s latest Hong Kong Property Market Monitor, net absorption – a metric used to measure occupancy rates – remained positive at 249,000 square feet (23,133 square metres), picking up from the previous month’s 56,200 square feet.

“More companies resumed their search for office space after the government relaxed the social distancing measures in April,” said Alex Barnes, head of agency leasing at JLL in Hong Kong. “We believe the market sentiment will continue to improve.”

The fifth wave of COVID-19 from late February to March, caused by the highly infectious Omicron variant, prompted stricter measures that at least one major listed property investment firm connected to a reversal in Hong Kong’s leasing momentum since the second half of 2021.

Rents, Vacancy Rates Unchanged

In the same report, JLL said monthly rental rates remained at HK$57.40 ($7.30) per square foot in April, reflecting their stability during the first four months of the year in one of the world’s most expensive office markets. Central, the city’s primary business district, registered marginal rental growth of 0.1 percent, while Tsim Sha Tsui experienced the biggest rental decline.

Meanwhile, vacancy rates in Hong Kong’s Grade A office market stood at 9.4 percent in April, unchanged from the previous month and with marginal differences since the start of the year.

Kowloon East and Tsim Sha Tsui had the highest rates among major submarkets, at 12.8 percent and 10.4 percent respectively. In Wanchai and Causeway Bay, vacancy rates dropped from 9.2 percent to 9.1 percent, while Hong Kong East’s rose from 7.9 percent to 8.2 percent.

Vacancy rates in Central edged up to 7.4 percent from 7.3 percent a month earlier.

While office rental and vacancy rates have stayed flat, local developer Chinachem signalled confidence in the market with its winning bid in late March to develop up to 1.3 million square feet of space at a site in Lantau Island’s Tung Chung area for HK$2.78 billion ($350 million).

In early May, BentallGreenOak and Schroders Capital announced a HK$1.5 billion ($190 million) joint venture with Lofter Group to develop a 115,800 square foot commercial project in Tsim Sha Tsui.

Retail Leasing Still Stagnant

Retail leasing in Hong Kong remained quiet in April, with the market continuing its subdued streak from the two previous months when a resurgence of the coronavirus was at its peak.

“Some retailers further postponed their expansion plans due to the unstable market situation, however, a handful took advantage of the limited bargain hunt opportunities and committed to new outlets,” Nelson Wong, head of research at JLL in Greater China, said in the report.

Still, some notable deals were seen in April, including a local food and beverage group committing to a 7,760 square foot ground-to-first-floor shop at Soundwill Plaza in Causeway Bay with a monthly reported rent of HK$1 million ($127,138).

In contrast, the investment market side picked up from last month with a few sizable deals. These included a 5,200 square foot ground-to-mezzanine floor shop at Yip Fung Building in Central purchased by private investor Douglas Young for HK$165 million ($20.9 million).