Mingtiandi

Asia real estate and outbound investment news

  • Facebook
  • LinkedIn
  • RSS
  • Twitter
Sign Up / Login Logout

Lost your password?
Register
Forgotten Password
Cancel

Register For This Site

A password will be e-mailed to you.

  • Capital Markets
  • Events
    • Mingtiandi 2022 Event Calendar
    • APAC Residential Forum 2022
    • Asia Logistics Forum 2022
    • Asian Capital in Australia Forum 2022
    • Asia REIT Forum 2022
    • APAC Data Centre Forum 2022
    • Singapore Focus Forum 2022
    • Office Strategies Forum 2022
    • More Events
  • MTD TV
  • People
  • Logistics
  • Data Centres
  • Asia Outbound
  • Retail
  • Research & Policy
  • Advertise

Hong Kong Office Rents Could Fall 10% in 2021 After New Leases Slid 39% This Year

2020/12/21 by Christopher Caillavet 1 Comment

one taikoo place hong kong

Eastern Hong Kong projects such as Swire’s One Taikoo Place weathered 2020 better than most locations

Despite hopes for a recovery after this year’s pandemic-induced meltdown, property consultancies have issued cautious forecasts for Hong Kong in the new year, with office leasing in particular braced for a further decline after a battering in 2020.

This year saw office rents in upmarket Central fall to their lowest since 2015, while tenant withdrawals in the city overall reached the highest level on record, according to a recent JLL analysis.

New lettings in Central fell about 39 percent compared with 2019 levels. The vacancy rate in the overall office market rose to 8.8 percent, the highest level since 2004, and the amount of leased space relinquished prematurely reached 1.6 million square feet (148,645 square metres), a high since 2001.

Squinting for the Silver Lining

“Despite subdued leasing demand in the near term, gross leasing volume is expected to pick up in 2021 as tenants start making longer-term real estate decisions,” said Alex Barnes, head of markets at JLL in Hong Kong. “The vacancy rates will continue to rise in 2021, albeit at a slower pace. The rental fall would be less significant next year compared with 2020.”

JLL expects rents to drop in a range of 5 to 10 percent in 2021 across all office submarkets — except for Tsim Sha Tsui, where leasing rates are seen falling 10 to 15 percent in the southern Kowloon area’s aging buildings as district faces growing competition from emerging business locations in the city.

Oliver Tong, Joseph Tsang, Alex Barnes JLL

JLL’s Oliver Tong (left), Joseph Tsang and Alex Barnes are predicting less pain for 2021

The rental decline in traditional business districts has been steeper than in decentralised locations as more tenants seek cost-effective options, JLL said.

In Central, office rents this year fell an estimated 22.7 percent to an average of HK$93.80 ($12.10) per square foot, the sharpest drop among submarkets. Rents in the hard-hit financial district are now down 28 percent from their peak in the second quarter of 2019.

Up and coming Kowloon East, which thanks to newer buildings and lower rates than Central has attracted tenant titans like JP Morgan in recent years, took less of a hit but still saw rents fall 10.5 percent this year, JLL said.

Still, the steep correction in rents could give bargain-hunting firms the push they need to consider taking up more space in Hong Kong.

“Lower rents can increase the city’s competitiveness, potentially positioning Hong Kong as a more attractive location to conduct business,” Barnes said. “The secondary listings of PRC firms in Hong Kong and GBA Wealth Management Connect would attract more mainland financial institutions and related industries to set up offices in the city, which could help support office demand in the medium term.”

Sentiment Vaccine Needed

Cushman & Wakefield also sought to temper 2021 expectations in its Hong Kong forecasts released last week. The agency said that while the full-year outlook remains gloomy, the availability of a COVID-19 vaccine by mid-year should support the beginnings of an office demand recovery.

Office forum 2022_250 ad

Cushman estimates that the amount of office space under lease in Hong Kong fell by 2 million square feet during 2020, roughly in line with JLL’s findings. Overall vacancy in the fourth quarter climbed to 12.1 percent, the highest level since the first quarter of 2005. That degree of empty offices climbed into double digits across Hong Kong’s major commercial hubs during the quarter, with the exception of Hong Kong East, where lower rents and new projects such as Swire Properties’ One Taikoo Place have helped to draw multinational tenants.

“Net absorption is forecast to remain in negative territory, ranging from -650,000 to -700,000 square feet, as demand is set to remain weak in 2021,” said John Siu, managing director of Cushman & Wakefield Hong Kong. “Despite the limited new supply scheduled for 2021, the 4.2 million square feet in new supply from nine projects planned in 2022 is expected to continue to weigh on rentals.”

While Hong Kong East proved more resilient than other Hong Kong business hubs, the area around Taikoo and Quarry Bay still saw office rents slide by 12.7 percent so far this year, according to Cushman’s analysis. Rents across the city were down an estimated average of 18.7 percent, near the midpoint of the agency’s previous forecast range in October.

“Office rents will continue their downward trajectory as demand remains weak and availability rises,” said Keith Hemshall, Cushman’s head of office services for Hong Kong. “Large occupiers with leases expiring in 2022-23 will seek to leverage against over 4 million square feet of new Grade A supply completing in 2022.”

Small occupiers will continue to consider serviced offices as an option to maintain flexibility and avoid upfront expense, Hemshall said.

Limited Tax-Cut Boost

With rents being pushed down, capital values in the Hong Kong’s Grade A office market fell by an average of 20.5 percent in 2020.

Logistics forum 2022 Web banner

That slide in commercial property values came as tension between buyers and sellers over the market outlook dragged on market turnover, with total investment volume for commercial properties worth over HK$20 million tumbling 27 percent this year to HK$54.2 billion, the lowest level since the global financial crisis, JLL said.

The agency sees the office investment market dropping a further 10 to 15 percent by value in 2021, despite recent moves by the government to remove barriers to transactions.

“The abolition of the double stamp duty on non-residential property transactions is expected to provide a fresh impetus to investment activity, especially for stratified assets with relatively small consideration,” said JLL Hong Kong chairman Joseph Tsang. “But this would likely have limited impact on en bloc transactions as most of them are conducted via company share transfers.”

Share this now

  • LinkedIn
  • Share
  • Tweet
  • Email

Filed Under: Research & Policy Tagged With: Cushman & Wakefield, daily-sp, Featured, highlight, Hong Kong, JLL, office leasing, weekly-sp

https://player.vimeo.com/video/659566078?h=43adf472db

Comments

  1. Sam says

    2020/12/29 at 3:13 pm

    25-35% reductions should be sought by all tenants. If not then your agent isn’t doing his or her job.

Leave a Reply

Your email address will not be published. Required fields are marked *

Get Mingtiandi Delivered

MTD TV

MTD TV Interview with Jeffrey Perlman of Warburg Pincus Now Online

MTD TV Emerging markets logistics

Emerging Markets to Benefit From Supply Chain Diversification, Search for Yield: MTD TV

More MTD TV Videos

Latest Stories

Shum Tin Ching Jiayuan

Jiayuan Confirms Plan to Sell Property Management Arm to Jinke Unit, Makes Bond Payment

SingLand CEO Jonathan Eu

UOL’s SingLand to Redevelop Clifford Centre at Raffles Place as Rents Rise

MTD TV Emerging markets logistics

Emerging Markets to Benefit From Supply Chain Diversification, Search for Yield: MTD TV

Sponsored Features

anny zhang jll

Shanghai Life Science Leasing Doubles as Report Shows Future Growth Sponsored Feature

Rosanna Tang Colliers

Office Upgrades Jump After Omicron Slowed Hong Kong Market in Q1 Sponsored Feature

Bernie Devine

Is Your Building a Device? Sponsored Feature

More Sponsored Features>>

MTD-QR-Code-320

Connect with Mingtiandi

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Real Estate News

  • Capital Markets
  • 2022 Event Calendar
  • MTD TV Archives
  • People
  • Logistics
  • Data Centres
  • Asia Outbound
  • Retail

More Mingtiandi

  • About Mingtiandi
  • Contact Mingtiandi
  • Mingtiandi Membership
  • Newsletter Subscription
  • Advertise
  • Terms of Use
  • Privacy
  • Join the Mingtiandi Team


© 2007-2022 China Advertising Media Ltd (Samoa). All rights reserved.