“Increased space availability and the more attractive rental level in Hong Kong’s office market have created opportunities for occupiers to move into newer, greener buildings at a lower cost, but a broader rebound in demand will take root once the border with mainland China reopens”, says Rosanna Tang, the newly appointed Head of Business Development Services for Hong Kong at Cushman & Wakefield, leading research and marketing functions for the firm there.
The Asian financial hub’s Grade A office rental rates fell 1.7 percent year-to-date as of June 2022, according to Cushman & Wakefield’s Q2 2022 Hong Kong Office MarketBeat report. The agency predicts a 2-3 percent drop in rents for the full year, with a second-half recovery to be led by core CBD districts as the fifth wave of COVID-19 subsides.
All else remaining equal, Tang sees occupiers gravitating to newer buildings at the expense of Hong Kong’s aging office stock — unless owners take the initiative to make improvements to their decades-old properties.
“Most of the occupiers in the office sector are still looking for a cost-efficient real estate strategy,” she says. “Some of the large multinational corporations would look for offices with strong green credentials because they may need to comply with certain such certifications now or potentially in the future. As such, a flight-to-quality is really a strong recurring theme that we’re seeing on the ground nowadays.”
Emerging New Sectors Delivers Boost
Cushman & Wakefield’s research shows that during the first half of 2022, office rents fell 1.6 percent year-to-date in Greater Central and 2.7 percent in Prime Central. Across the harbour, rents dipped by a milder 0.5 percent in Kowloon East and edged up 0.3 percent in Greater Tsimshatsui during the period.
Among the occupiers moving in Tsimshatsui was BKYO, a locally based fintech firm, leasing 23,400 square feet gross (2,174 square metres) of space at Gateway Tower 5 in the second quarter. Tang says the move wasn’t surprising given the Hong Kong government’s strategy to support for tech-led sectors under the city’s development plan.
“The government is keen to push the new economy,” she says. “This is a long-term initiative in which Hong Kong would like to boost fintech, start-ups, medical science, innovation and technology (I&T), and other such related new businesses. This trend is set to stimulate new streams of demand from sectors like co-working space operators, TMT and healthcare to support Hong Kong’s office market going forward.”
After more than a decade and a half in Hong Kong’s real estate industry, Tang joins Cushman & Wakefield after three and a half years at Colliers, where she last held the position of senior director and head of research for Hong Kong and the Greater Bay Area. Prior to that posting she spent nearly five years at CBRE, latterly serving as director of research for Asia Pacific.
Prior to this, Tang worked as an analyst for at banking giants Morgan Stanley and JP Morgan and as an equity researcher at Samsung Securities in Hong Kong.
A graduate of Peking University with dual bachelor’s degrees in political & public administration and sociology, Tang also holds a master’s degree in finance from the University of Michigan.
Looking beyond offices, Tang anticipates that Hong Kong’s retail sector is bottoming out as lockdown measures start to ease. Cushman & Wakefield’s report forecasts food and beverage rents to rise by 1 to 5 percent in the second half of the year, with some high street rents likely to reach 3 to 5 percent growth.
“We are expecting the social distancing policy to relax in the second half of this year,” Tang says, “this coupled with the next round of the Consumption Voucher program soon to be issued in August, and provided that there are no recurrences of extreme waves of COVID in the city, this could drive some momentum leading to greater stability and recovery in the retail market.”
On the investment side, demand for industrial properties is tipped to remain strong after global fund managers fuelled a rush of acquisitions in the first half. An emerging factor in this industrial demand is the opportunity for converting existing buildings into data centres, which was illustrated most recently with Angelo Gordon’s plan to transform a building in Tuen Mun into a 20-megawatt data centre facility.
With border restrictions having the potential to ease and business confidence returning, Cushman & Wakefield sees opportunities for more fund manager activity in the city during the coming months.
“We see PE funds with dry powder poised to deploy,” Tang says. “Some of them may have hesitated or their activities were frustrated because of COVID in the first half of 2022, they now seem set to become increasingly active in the second half and into 2023. We expect industrial properties, hotels, and development sites will continue to gain traction among investors.”