New Building Debuts Boost Office Vacancy in Hong Kong’s Central to 12.1%

The debut of new office buildings in Hong Kong’s Central district has boosted vacancy in what was once among Asia’s most sought after business locations by 29 percent from a year earlier, according to new figures from JLL.

Some 12.1 percent of Central’s grade A office space lay vacant at the end of June, the property agency said in a report released this past week, rising from 9.4 percent during the same month a year earlier.

With Central vacancy having risen from 12.0 percent at the end of May, the change in the market is leading to some better deals for tenants, as landlords compete to draw in occupiers, with even the city’s most exclusive locations offering cheaper rates on space, according to the consultancy.

“Overall, net effective rents of grade A offices dropped by an additional 0.6 per m-o-m in June, resulting in a total decline of 4.3 percent in the first half of 2024,” said Cathie Chung, senior director of research at JLL. “Among the major office submarkets, Central and Kowloon East saw further rent decreases of 0.8 percent and 0.6 percent, respectively. Rents also fell in the Tsimshatsui and Kowloon East submarkets, declining by 0.3 percent and 0.4 percent, respectively,”

New Buildings, Fresh Vacancy

Central’s increase in emptiness follows the completion of the Cheung Kong Centre II during May, with that CK Asset project adding 550,000 square feet of new space to the district after downsizing tenants in the city’s five primary business districts surrendered an estimated 552,000 square feet of net floor area to their landlords during 2023.

Bloomberg reported in May that the building, which CK Asset developed on the site of the former Hutchison House in Central, was only 10 percent leased, with no major tenants signings having been reported since that time.

Henderson Land Development in June welcomed the first tenants to the Henderson, a 43,200 square foot office project just three minutes’ walk from Cheung Kong Centre II, with that Zaha Hadid-designed tower said to be around 50 percent occupied.

“The influx of new office supply has contributed to an ongoing increase in vacancy rates, particularly in commercial districts with more new office space,” Alex Barnes, managing director and head of office leasing advisory for JLL in Hong Kong said.

The inflow of new supply and consequent rise in vacancy may not translate directly into cost reductions for occupiers, due to the clout of Hong Kong’s largest landlords, the agency cautioned.

“Despite this (rising vacancy), a substantial reduction in asking rents or a price war is unlikely to occur,” Barnes said. “A significant share of the office supply in the traditional business districts is dominated by a small number of major landlords, granting them substantial holding power.”

The veteran broker pointed out that approximately 35.1 percent of the grade A office supply in Central is owned by three major landlords (Henderson, Cheung Kong and Hongkong Land), and 32 percent of private office stock in neighbouring Admiralty district is owned by Swire Properties, which also controls 44.3 percent of the grade A office stock in the Hong Kong East area around Quarry Bay.

Hongkong Land, the largest landlord in Central is already taking steps to enhance the appeal of its pricey towers for the banks, insurers and professional services companies that have long flocked to the commercial hub.

In June the division of Jardine Matheson announced a $1 billion joint effort with luxury brands including Cartier, Chanel, Dior and Hermès to undertake a four-year upgrade of the Landmark shopping destination which underpins four of its office towers.

“Our transformation of Landmark will reinforce the Central portfolio’s position as one of the world’s most desirable locations to live and work,” Michael Smith, chief executive of Hongkong Land said at the time.

Beyond Central

By the end of June city-wide grade A office vacancy in Hong Kong had risen to 13.6 percent according to JLL, from 13.5 percent a month earlier.

Despite the overall rise, vacancy in Tsimshatsui and Kowloon East decreased by 0.4 and 0.2 percentage points, respectively, as some buildings were taken off the market for redevelopment.

The city-wide uptick in vacancy helped pull down average rents in Hong Kong by 0.6 percent, according to JLL.

In a sign that occupiers continue to cut their office expenses in Hong Kong, the net take-up in the market last month totalled negative 53,700 square feet after a blip in completion of self-occupied projects during May had helped drive 21,200 square feet of net absorption during that month.