Average office rents in Hong Kong’s Grade A office market rose 0.2 percent in October from the month before, their first increase since rates last peaked in May 2019, according to JLL.
On a net effective rental basis, average tariffs in the world’s most expensive office market edged up to HK$55.90 (now $7.17) per square foot per month as tenants leased 107,200 square feet (9,959 square metres) more than they gave up in October, with the property consultancy saying in its latest Hong Kong Market Monitor report that the industry has reached a turning point.
“On the whole, the office sector is reaching a cyclical bottom as rents in some parts of the market have already nudged higher in the past couple of months,” Nelson Wong, head of research at JLL in Greater China, told Mingtiandi.
The city’s traditional business hub in Central was a primary beneficiary of the upswing, recording an uptick in leasing rates thanks to new deals signed by financial and professional services firms, which have experienced less damage from the economic ravages of the pandemic, Wong said, with rents also said to be moving upward in Kowloon’s Tsim Sha Tsui area.
Apollo Moves House
Standing out in Central’s October deal list was Apollo Global Management’s take-up of a 13,900 square foot upper floor at Hongkong Land’s One Exchange Square, where the US-based fund manager is paying roughly HK$120 per square foot in monthly rent. The investment firm founded by Leon Black is relocating within Central from its current home at the Hong Kong Club Building on Chater Road.
Further east on the island in Causeway Bay, flexible office operator IWG leased two floors with 23,400 square feet of gross floor area for a new Spaces centre at Tower 535, taking over part of rival WeWork’s former Hong Kong flagship location. Also moving into the Jaffe Road tower is design firm Benoy, which is relocating from Swire Properties’ Lincoln House in Quarry Bay.
In its own Hong Kong report, property services firm Knight Frank detected “bottoming-out signals” and said tenants in October generally took a wait-and-see approach, opting for renewals over relocation. Lease re-ups included Japanese logistics firm Nippon Express recommitting to 17,714 square feet at Chinachem Golden Plaza in Tsim Sha Tsui and entertainment giant Universal Music renewing for 17,606 square feet at Millennium City 6 in Kwun Tong.
Leasing demand outside the primary commercial hubs remained weak, Knight Frank said, and landlords showed more flexibility in lease negotiations, giving co-working operators like Switzerland-based IWG the opportunity to expand at reduced rents.
Vacancy Drifts Lower
Grade A office vacancy in Hong Kong’s overall market dipped to 9.7 percent at the end of October from 9.8 percent a month earlier, JLL said. Wan Chai/Causeway Bay and Kowloon East saw the biggest decline in vacancy, each dropping 0.4 points to 9.9 percent and 13.4 percent respectively.
Despite their climbing rents, vacancy inched up 0.1 points to 7.9 percent in Central and rose 0.2 points to 10.1 percent in Tsim Sha Tsui.
The office investment market was dominated by primary sales activities, JLL said. These included New World Development selling a block of three high-level floors at 888 Lai Chi Kok Road in Cheung Sha Wan to Nanyang Commercial Bank for HK$1.19 billion (HK$17,500 per square foot).
With the office tower set for completion in April 2022, New World has now sold about 70 percent of the 28-storey tower’s gross floor area after kicking off sales last December.
Also noteworthy was Henderson Land winning the tender at Central Harbourfront Site 3 for a record-breaking HK$50.8 billion. The developer controlled by the family of billionaire Lee Shau-kee now has the 50-year land grant for the site adjoining the IFC complex in Central and with it the rights to develop some 1.6 million square feet of commercial space.
Despite the stabilising picture in Asia’s longtime financial capital, JLL’s Wong predicted diverging fortunes for Hong Kong’s primary business hubs in the year to come.
“We forecast a minor uptick in overall office rents in 2022,” he said. “However, the overall figure masks a divergence in rental trends between submarkets. Considerable new supply will also dampen the prospects for a more visible uptick in rents in the near to medium term.”