Hong Kong Grade A office rents to jump by 5-10% in 2022
The recentralisation trend is expected to underpin rental growth.
For the sixth consecutive month, office vacancy rates in Central Hong Kong dropped to 7.4% in November as demand for premium CBD buildings increased and rental levels remained attractive. Knight Frank says the vacancy rates in the CBD fringe areas, such as Causeway Bay and Sheung Wan, also recorded slight downward adjustments, dropping to 7.1% and 7.6%, respectively.
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Contrary to the common perception that the pandemic-induced work-from-home arrangements would reduce demand for office space, our global (Y)our Space Report revealed that about 70% of Hong Kong-headquartered enterprises plan to increase their office space in the next three years. The findings show that office space remains widely recognized as an important element for Hong Kong enterprises even during the pandemic.
Stepping into 2022, buttressed by the “recentralization” trend, we expect Grade A office rents on Hong Kong Island to go up by 5% to 10% in 2022, especially in the CBD. However, because of more upcoming supply in Quarry Bay and Wong Chuk Hang, we expect rents in these districts to fall 3 to 5% and 5 to 10%, respectively, in the coming year.
As tenants are still taking a wait-and-see approach to their real estate plans at the end of the year, leasing demand was weak during the month. Most of the leasing activity was dominated by renewal cases for small and medium enterprises, mainly in the shipping and logistics sectors, at an average rent of HK$22 per sq ft or less. Because of the weak momentum, there were fewer new lettings of over 10,000 sq ft recorded in November.
A few rent review cases and small-scale expansion cases supported the leasing market. Examples include a rent review by the professional firm Cheng & Cheng CPA in Enterprise Square V; and an office expansion by logistics company Cargo Partner from 18,000 sq ft to 26,000 sq ft in Harbourside HQ.
As market activity level tends to slow down during the festive seasons, we expect the leasing market to remain quiet until after the Chinese New Year. Looking ahead, despite hopes for a faster recovery after the reopening of border, the abundant new supply of office space in Kowloon has limited our forecast to a minor uptick of 0% to 2% in overall Kowloon office rents in 2022, which is on a par with the annual inflation rate.