Office vacancy in Hong Kong’s Central commercial district climbed further in January amid a trend of corporate tenants relocating to cheaper office locations in the city, according to JLL.
In its Property Monitor Report released Monday, the real estate consultancy said vacancy in Central’s Grade A office market reached 7.5 percent last month, up from a December rate of 7.3 percent that marked the first reading above 7 percent since 2004.
In the overall market, Grade A office vacancy rose to 9.3 percent from 8.9 percent at the end of December.
Alex Barnes, head of office leasing advisory at JLL in Hong Kong, said the city recorded a net withdrawal of 366,200 square feet (34,021 square metres) in January as occupier demand for space in the world’s priciest office market continued to fall. Despite the latest slide in tenant sentiment, the veteran broker saw reason for optimism as the world waits for the pandemic to fade.
“We believe Hong Kong will rebound quicker than most comparable markets because of its importance to the mainland China market,” Barnes said.
Finance Firms Retreat
With demand faltering, net effective rents for grade A offices in Hong Kong fell 0.6 percent in January from the previous month, to HK$58.40 ($7.53) per square foot, a moderate drop compared with December’s 1.1 percent decrease, JLL said.
Leasing rates in the core districts of Central and Tsim Sha Tsui were relatively stable last month, while Wanchai/Causeway Bay saw the steepest decline of 1.4 percent.
After FTLife Insurance relinquished an entire floor with 16,500 square feet of space at Kowloon Bay’s FTLife Tower in December, finance firms continued to downsize in January.
Deutsche Bank last month gave back three floors with 103,900 square feet of space at International Commerce Centre in West Kowloon, while AIA returned various units spanning 64,100 square feet at The Gateway in Tsim Sha Tsui.
The exodus shows no signs of slowing: this month began with a Bloomberg report that Standard Chartered was relinquishing the lease on eight floors it occupies in the Standard Chartered Bank Building in Central, with plans to rent out three levels in the Kwun Tong office that the British lender owns.
In a Thursday interview, chief financial officer Andy Halford told Bloomberg TV that Standard Chartered would likely cut its global office space by a third in the next three to four years.
Island East Endures
Among all submarkets, Kowloon East continued to show the highest vacancy rate at 14.4 percent in January, while Hong Kong East had the least empty space at 5.5 percent.
Barnes indicated that some companies continue to expand their presence in the Asian financial hub, despite the cutbacks by some of the biggest banks operating in the city.
“Although the total number of regional headquarters in Hong Kong decreased by 2.4 percent in 2020, companies from the US, mainland China and Italy rose 1.4 percent, 10.2 percent and 15 percent respectively,” he said. “More mainland China firms set up a regional office in Hong Kong in 2020 compared to 2019.”