Hong Kong Office Leasing Recovery Remained Elusive in Q1 as Rents Fell 1.5%

Tenants in Hong Kong’s Grade A office market gave up 248,000 square feet (23,040 square metres) more than they leased during the first quarter of 2023 as an immediate rebound from the Lunar New Year holiday lull failed to materialise, according to Cushman & Wakefield.

Despite the full border reopening in February and the resumption of normal business activities, first-quarter office rents fell 1.5 percent compared with the prior three months to an average HK$51.20 (now $6.52) per square foot per month, the consultancy said in its Hong Kong Office and Retail Leasing Markets Review and Outlook. The rate was down 7.9 percent from year-ago levels and 32.5 percent from the all-time peak of HK$75.90 in April 2019.

On the plus side, the reopening allowed corporate decision-makers to visit for inspection activities and expedite decisions on expansion, downsizing, relocation or renewal, said John Siu, managing director and head of project and occupier services for Hong Kong at Cushman & Wakefield.

“The past few weeks have also seen a gradual pick-up in office enquiries and viewings,” Siu said. “However, it will take time for these activities to translate into actual leasing transactions, and therefore will not be immediately reflected in the net absorption and leasing performance in the first quarter.”

Citywide Decline

Average rents in all of Hong Kong’s Grade A office submarkets were down on a quarterly basis with the exception of Kowloon West, where the rate remained flat in the first three months of the year.

In Greater Central, which Cushman & Wakefield defines as Admiralty, Central and Sheung Wan, average rents dipped 1.4 percent from the previous quarter to HK$90.70. Prime Central, a group of 12 key office buildings in Greater Central, saw rents ease 1 percent to HK$105.20.

The quarter’s biggest decline was in Hong Kong East, where rents tumbled 2.3 percent to HK$43.30.

The availability rate in the city climbed for a fourth straight quarter to 17.1 percent, making it difficult for landlords to raise rents, Siu said, adding that Cushman expects overall Grade A office rents to fall in a range of 2 to 4 percent for the full year.

MUFG Lands at Airside

In terms of new leasing transactions by industry, banking and finance accounted for the largest share of new leases in the first quarter at 33.3 percent, followed by professional services (14.8 percent) and medical, health and beauty (13.5 percent). By submarket, Central and Kowloon East were home to a respective 22 percent and 32 percent of overall transactions, with the latter locality recording a net absorption of 140,700 square feet.

Kowloon East also welcomed the quarter’s single largest leasing deal, with Japanese finance giant MUFG taking up 62,500 square feet of office space at Nan Fung Group’s Airside complex in Kai Tak.

Canadian pension fund manager CPPIB leased 24,200 square feet at Henderson Land’s The Henderson in Central, while Big Four accounting firm Deloitte grabbed 21,200 square feet at Sun Hung Kai’s Millennity Tower 2 in the Kwun Tong area of Kowloon East.

“Looking ahead, potential demand from mainland companies is expected to drive the recovery in office leasing activity,” Siu said. “Nearly 2 million square feet of new Grade A office supply will be completed in the second half of the year, and pre-leased space from this new supply will bring positive net absorption to the market. We forecast the full-year net absorption figure to reach around 400,000 square feet.”