Grade A office rents on Hong Kong Island down 4.3% in February

Smaller office spaces drove leasing demand.

According to a Knight Frank report, in February, the overall average Grade A rent in Hong Kong Island continued to decline, dropping by 0.5% MoM and 4.3% YoY to HK$60.8 per sq ft. There has been notable activity in smaller office spaces, particularly those ranging from 2,000 to 3,000 sq ft.

The legal sector is experiencing significant growth due to the increasing complexity of financial markets, said Knight Frank, resulting in heightened demand for specialised legal services. This trend has led to new entries and expansions by law firms focusing on private equity funds, investment trusts, exchange traded funds (ETFs) and other finance-related matters.

“Recently, two UK law firms have set up their new outposts in Hong Kong: one firm leased the entire 21st floor of Gloucester Tower, Central, covering 12,600 sq ft, while the other secured 3,000 sq ft in K11 ATELIER, Quarry Bay,” the report added.

Here’s more from Knight Frank:

Meanwhile, the finance sector remained active. For instance, a multinational company providing commercial insurance brokerage services leased 23,000 sq ft on the 25th floor of Two Taikoo Place, relocating from Causeway Bay; while a large-scale transaction involving an alternative investment firm leasing 55,049 sq ft was recorded in The Henderson.

On another front, there has been an increase in inspections and inquiries from the crypto sector, which typically prefers smaller office spaces and co-working environments. Government’s investments in Web3 infrastructure and talent development, coupled with tax relief on crypto profits for hedge funds and private equity firms, are anticipated to attract investment.

The office leasing market is currently facing significant challenges, including declining rents, high vacancy rates and an oversupply of space. We expect that the measures announced in the Budget—specifically, the halt on releasing new commercial sites for sale in the coming year and the rezoning of some commercial properties for residential use—will stabilise the supply-demand dynamics of the office market and mitigate further rental pressures.