Hong Kong Office Vacancy Holds Firm as Commercial Property Investment Drops 17.8%: JLL

Vacancy in Hong Kong’s Grade A office market held steady in April at 13.7 percent, with prime Central district reporting a slight increase, after commercial property investment in the city fell 17.8 percent year-on-year in the first quarter to $850 million, according to JLL.

Tenants citywide took up 39,700 square feet (3,688 square metres) more Grade A office space than they gave back last month, the consultancy said in its monthly Market Dynamics report. Office rents continued their downward trend, dropping 0.5 percent from the previous month to an average of HK$46.90 ($5.99) per square foot per month in April.

Despite a market boost from the city’s biggest deal of the year — HKEX’s acquisition of nine floors at Hongkong Land’s Exchange Square complex in Central for HK$6.3 billion ($810 million) — capital values of commercial real estate are declining due to uncertainties surrounding US tariff and interest rate policies, said Oscar Chan, head of capital markets at JLL in Hong Kong.

“However, this situation presents a buyer market for investors seeking value-based assets, especially for end-users,” Chan said.

Freeing Up Space in Central

Vacancy in Central crept up 0.2 points to 11.7 percent in April, mainly due to available space resulting from prior consolidations and relocations, while Hong Kong East continued to struggle as the rate of empty space jumped 0.8 points to 14 percent, JLL said.

Other submarkets saw improvements, with Wan Chai/Causeway Bay, Tsim Sha Tsui and Kowloon East recording vacancy decreases of 0.3, 0.4 and 0.3 percentage points, respectively, to reach 9.2, 7.9 and 21 percent.

In terms of office rents, Central experienced a modest decline of 0.4 percent as other key submarkets, including Wan Chai/Causeway Bay, Hong Kong East and Kowloon East, saw greater drops of 0.6 percent each.

“The latest dip marks the 36th consecutive month of rental declines since May 2022,” said the report authored by senior research director Cathie Chung and assistant research manager Terrence Zhou.

In a notable leasing transaction, Payment Cards Group Ltd took up 12,100 square feet of gross floor area at World Finance Centre in Tsim Sha Tsui as part of the payment technology firm’s relocation and expansion from Kowloon East.

Ageing Out of Service

Some 44 percent of Hong Kong’s Grade A office space is more than 30 years old, with the proportion expected to increase to 55.1 percent by 2030, JLL said in a separate report.

Capital and rental values for Grade A offices are projected to decline by over 10 percent by 2026, according to the consultancy, with poorly maintained office buildings potentially experiencing declines of up to 20 percent.

Chung noted that 97.4 percent of Grade A office stock in Hong Kong’s CBD was completed before 2015, the highest level among global gateway cities.

“With the ageing office stock, the market is expected to see an influx of 8.3 million square feet of new Grade A office supply over the next five years — equivalent to the cumulative net absorption of the past decade — further intensifying competition,” she said. “Aged office buildings that fail to undergo timely upgrades and refurbishments will struggle to meet rising tenant expectations, facing rental pressure, increasing vacancy rates, reducing operation efficiency, and declining asset values.”

For properties unsuitable for large-scale retrofit, JLL recommends landlords consider cost-effective measures that focus on improving common areas and basic amenities, minimising disruption to tenant operations while delivering short-term improvements.