PROPERTY SECTOR REPORT: COMMERCIAL
Office property market to recover despite high vacancy rates Analysts expect it to enter the last phase of its down-cycle.
H
ong Kong’s office property market is in a state of recovery although vacancy is still high as corporate downsizing continues. Because of this, overall net absorption remains in the negatives. According to JLL’s Hong Kong Property Market Monitor, the overall net absorption in July was -89,000 square feet. Compared to figures last year, gross leasing volume has improved as tenants resumed making real estate decisions after postponing them last year due to the pandemic. “However, most leasing transactions involved only relocation or upgrading, with limited expansion cases. Net absorption was still negative as many corporates opted to downsize in challenging times. Rents continued to fall but at moderate magnitude compared with 2020, Nelson Wong, head of research at JLL in Greater China said.
In August, vacancy rate was at 9.6% with Kowloon East having the highest vacancy rates amongst Hong Kong’s regions at 13.1%. Central’s vacancy rate rose to 7.7% at the end of August. According to JLL, some tenants have opted to relocate to more cost-effective locations; however, demand for premium office spaces in the submarket remained healthy. Rental declines continue Hong Kong continued to experience rental declines for eight consecutive quarters. In the first quarter of 2021, rental decline moderated to 3.5% compared to 5.1% in the fourth quarter of 2020. Savills reported that Wanchai/ Causeway Bay registered the largest rental fall amongst all sub-markets at -4.3%, partly because of its exposure to co-working operators and financial services firms. The first quarter (Q1) also saw
Hong Kong office property market is in a state of recovery despite high vacancy rates
22
REAL ESTATE ASIA | Q1 2021
Whilst there is broad agreement in the business community that the worst times are behind us, questions linger over when the best times will return
Hong Kong Island rents fall by -4.0% whilst Kowloon rents were relatively stable, registering a 2.8% fall. Rents in Tsim Sha Tsui, Kowloon East, and Kowloon West fell by 5.2%, 2.2%, and 1.4%, respectively. Meanwhile, Kowloon West rents have proved relatively resilient since the third quarter of 2019 because downsizing has been less common for corporates situated in the area, where rents are said to be relatively cheap. When the second quarter (Q2) arrived, however, Grade A rents still fell but were lower than last quarter at 2.6%. PRC corporates remained active in the leasing market and has proven to be resilient over the quarter and is largely driven by the financial services industry. The proportion of Central Grade A offices occupied by PRC firms increased from 20.5% in July 2017 to 23.5% in June 2021 despite the challenging market conditions In Q2 2021, rents in Central,
