
Hong Kong skyscrapers One ifc and Two ifc saw some of the biggest leasing deals of the quarter
Average grade A office rents in Hong Kong’s Central district climbed to historical highs in the second quarter, driven by escalating demand from mainland Chinese firms.
The average cost for renting a square foot of grade A space in the city’s traditional downtown rose to nearly HK$125 ($16) per month, as mainland heavyweights including Huarong Asset Management and HNA signed some of the biggest leases of the quarter.
Meanwhile, many international tenants continue to flee Central for cheaper parts of the city, including Kowloon East where a string of new office buildings are scheduled for completion over the next few years.
Drawn from research by five international property service providers, this first edition of Mingtiandi’s Hong Kong Office Index finds that rents in Central continue to surge despite an estimated 2.6 million square feet (246,100 square metres) of new office supply that is slated to hit the Hong Kong market in the second half of 2017. Another 10 million square feet (929,030 square metres) will follow over the next three years, mainly in secondary office locations around the city.
Based on the latest Hong Kong office reports by CBRE, Colliers International, Cushman & Wakefield, JLL, and Savills, the Office Index compiles and compares data for average rental rates, new supply, vacancy rates and projected new supply to provide an aggregated picture of what the largest agencies are seeing.
Central Rents Surpass Pre-Financial Crisis High
Largely due to demand from mainland financial institutions and other tenants from north of the SAR’s borders, average Grade A office rents in Central grew by 1.3 percent quarter-on-quarter to HK$124.9 ($16.00) per square foot, according to the aggregated data compiled by Mingtiandi. The lack of new space during the period contributed to this rise with vacancy in Hong Kong’s traditional downtown remaining tight at 2.1 percent.

Note: Cushman & Wakefield reports on “Greater Central (CBD)” which includes Central and the bordering areas of Admiralty and Sheung Wan
Several agencies noted that the rent level surpassed the previous peak achieved just before the global financial crisis in 2008. Cushman & Wakefield noted robust rental growth of 2.9 percent quarter-on-quarter, underpinned by a brisk increase in prime rents.
Savills observed that the bond connect scheme, launched at the start of July, to link mainland China’s bond market with foreign investors was a key driver of Chinese corporate demand in Central during the second quarter.
HNA and Huarong Take Up More Hong Kong Space
The new debt sale pipeline may have contributed to new lease and expansion requirements from mainland corporates as leases by HNA Group and Huarong Asset Management played a key role in driving rents upward, with HNA taking 93,600 square feet (8,696 square metres) at Three Exchange Square, and a Huarong subsidiary leasing 18,700 square feet (1,737 square metres) at Two Pacific Place in Admiralty.
JLL reported that mainland banking and finance firms accounted for about 46 percent of new leases by floor area in June. The agency added that co-working and serviced office operators such as Regus and WeWork were also among the most active drivers of demand. CBRE noted that mainland firms accounted for around 25 percent of space leased in Central during the second quarter but were less active than in previous quarters.
Other mainland leasing deals during the period included Zhang Lei’s Hillhouse Capital Management taking 10,400 square feet (966 square metres) in Two ifc and China Development Bank expanding by 8,500 square feet (790 square metres) in One ifc.
Non-Core Areas Offer Rent Relief
Zooming out beyond Central, the overall grade A market in Hong Kong saw a more modest rental increase of 0.78 percent quarter-on-quarter to HK$72.4 ($9.28) per square foot per month. Overall vacancy was stable, declining by just 0.1 percentage points to an average 4.5 percent.

Note: Cushman & Wakefield reports on “availability” rather than vacancy; and “Greater Central (CBD)” which includes Central and the bordering areas of Admiralty and Sheung Wan
Leasing activity outside of Central was largely driven by cost-saving relocation and consolidation requirements, including tenants relocating to upcoming grade A buildings.
Cushman & Wakefield noted that Hysan Development’s Lee Garden Three, a 32-storey office tower in Causeway Bay set for completion in the fourth quarter, benefited from the trend with about 79,000 square feet of space pre-committed by two regional banks and a global consulting firm. Sheung Wan and Wan Chai have also received a boost from spillover demand from Central.
Colliers found that the decentralisation trend gained momentum last quarter, with large tenants consolidating their operations into new projects in Causeway Bay and Wong Chuk Hang on the south side of Hong Kong Island, pushing down vacancies in non-central areas.
Net absorption of new space across the city was low or negative due to softening leasing momentum and several whole floors being returned to the market.
New Supply Wave Set to Hit Kowloon East
All of the agencies reported that no new grade A supply came online in Hong Kong during the second quarter. The supply constraints are set to loosen, however, as the agencies forecast an average of 2.6 million square feet of new grade A space hitting the market in the second half of 2017, with estimates ranging from 2.2 to 2.8 million square feet.
Most of this new supply will come on stream in Kowloon East, the former industrial area that the city government aims to transform into a new business hub. Upcoming projects this year include Mapletree Bay Point, a 21-storey, 660,000 square foot (61,316 square metre) tower where WeWork is reported to have leased a full floor; Hong Kong Pacific Tower offering 332,000 square feet (30,844 square metres); and Two Harbour Square spanning 479,000 square feet (44,571 square metres), all located in the Kwun Tong area.
Kowloon East has already seen a 340 percent increase in office stock over five years through last December. According to Cushman & Wakefield, the submarket will host another 1.8 million square feet (167,225 square metres) of additional grade A supply in the second half of this year.
However, take-up in the emerging business district remained sluggish during the quarter, Savills noted, in part because of oversized floor plates of 20,000 square feet or more, which are hard to lease to typical occupiers. According to the agency, the area recorded a vacancy rate of 7.5 percent, which is projected to rise sharply due to lethargic pre-leasing activity and large new supply in the pipeline, totalling 4.1 million square feet (380,902 square metres) over the next five years.
The softness in the Kowloon East market appears to be good news wot co-working providers put off by rising competition across Hong Kong Island, with both WeWork and naked Hub said to have been lured to the up and coming business district by its low rents and large floor plates.
Central Ascent Is Set To Continue

Developed by Hysan, Lee Garden Three in Causeway Bay is due for completion by year-end
Looking into the future, Cushman & Wakefield predicts that rents in Greater Central (which the agency defines as including the bordering areas of Admiralty and Sheung Wan) will climb by five to eight percent on average due to low availability and lack of new supply before 2022, when the Murray Road car park development is scheduled to be completed.
Colliers anticipates that rents across Hong Kong Island will grow by 2.1 percent in the second half of this year amid strong demand, while in Kowloon, they will drop by 4.3 percent under pressure from the new supply. Overall rents are projected to grow 9.4 percent in 2018, according to the agency. Colliers forecasts that more than 10 million square feet of new grade A space will be completed from 2018 through 2021.
CBRE sees rents in Kowloon East falling by five to ten percent in 2017, while Central rents are forecast to rise five to ten percent in the same time frame. Across Hong Kong Island, landlords will be able to lift the average rent slightly until new supply hits the market in mid-2018, according to the property agency.
Reports Used in this Study
To read the reports yourself, please follow the below links:
CBRE
CBRE MarketView: Hong Kong Grade A Office, Q2 2017
Colliers
Colliers Quarterly: Hong Kong | Office Q2 2017
Cushman & Wakefield
MarketBeat: Office Snapshot Q2 2017 Hong Kong
JLL
Property Market Monitor: Hong Kong July 2017
Savills
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