Hong Kong office occupiers have identified the city’s economic outlook and a potential global recession as two of the most important factors having an impact on their business, according to a Colliers survey.
In the poll of 321 occupiers, 43 percent of respondents named the local economy as a key concern and 34 percent cited a potential global downturn, the property consultancy noted in its Hong Kong Occupier Survey 2023.
After the COVID-19 pandemic disrupted global business operations, challenging the traditional concept of work, the recent bearish environment has influenced companies’ office footprints and location preferences, said Fiona Ngan, head of office services at Colliers Hong Kong.
“Despite Hong Kong’s slower-than-expected economic recovery in H1 2023, business confidence and sentiment are showing gradual improvement, with 41 percent of respondents optimistic about their industry’s outlook in the next three years,” Ngan said in a release.
IT in Expansion Mode
When asked about their plans for the next two years, 58 percent of occupiers said they planned to stay in their existing office space, while 19 percent planned to relocate for expansion or upgrading purposes and 23 percent planned to downsize in order to optimise costs.
Among sectors, the occupiers most likely to have expansion plans were in information technology (56 percent) and banking/finance/insurance (35 percent). The sectors least likely to enlarge their footprint were manufacturing/sourcing/trading and shipping/logistics, with roughly a third (31 percent) of occupiers in those sectors planning to downsize their offices.
Across districts, 19 percent of occupiers in Central/Admiralty were inclined to expand or relocate, and 23 percent of those in the CBD’s fringe areas of Sheung Wan, Wan Chai and Causeway Bay had the same inclination.
Most prominent occupiers in IT and banking/finance/insurance plan to stay put in Central, Island East, Kowloon Station and Kowloon East, Ngan said, adding that landlords in those submarkets should approach and capture such occupiers early.
“Landlords should also be flexible when it comes to rental levels, considering that cost saving is the major concern in this competitive market,” she said. “To retain and attract better tenants, landlords should also focus on improving building quality to meet sustainability mandates adhered to by premium and anchor tenants.”
Costs Drive Downsizing
Occupiers looking to downsize are primarily motivated by cost optimisation (71 percent) and adapting to shrinking business demand (55 percent), rather than work-from-home policies (41 percent). Some are also downsizing because of capacity relocation to mainland China (14 percent), Singapore (13 percent) or other countries (9 percent).
Despite the Hong Kong government’s stated goal of reaching net-zero emissions by 2050, just one in three occupiers (29 percent) said they considered environmental, social and governance requirements as a determining factor in their workplace decisions.
Of the respondents with ESG requirements, 48 percent expect a rental difference for gold- or platinum-certified buildings, while the remaining 52 percent don’t anticipate a rent variation caused by ESG requirements.
“Occupiers are not fully aware of the benefits of green buildings and this has impacted their decision-making process as most are not giving green-certified buildings more weight in their leasing considerations,” said Chris Hui, executive director of office services at Colliers Hong Kong. “As such, landlords will gain a competitive advantage in the ESG space through a proactive disclosure of an ESG framework, performance of environmental benchmarks and risk management.”