,Hong Kong

Hong Kong Grade A office rents slip 1.5% in Q3

Rents declined in all major submarkets while Kowloon rents proved more resilient.

There has been considerable demand for offices in Central Hong Kong from Mainland companies over the last 10 years, but Savills says the market could see decelerating activity across all sectors from technology to real estate, from securities firms to i-banks and asset managers. Even e-games, casinos and education have not escaped the eye of the Mainland regulator. 

Despite the challenges, Savills notes of some selective expansion among Mainland financial institutions as well as some new industry tenants: Amber Hill (a Mainland asset management house) expanded to take up a floor in Two IFC while CITIC Securities is also taking additional space. Haitong Securities also took up more space in One IFC. In other news, HashKey Group (a cryptocurrency service provider) has leased 14/F of Three Exchange Square as their new headquarters. In the HK$100 per sq ft plus bracket, One/Two IFC and Exchange Square remain go-to developments given their landmark status and strong transport links. 

Here’s more from Savills:

Grade A rents fell by 1.5% in Q3/2021 compared with a 2.6% decline in Q2/2021 as Kowloon rents proved more resilient than their Hong Kong Island counterparts due to the faster absorption of vacant space at discounted rates. In Q3/2021, rents in Central, Wanchai/Causeway Bay and Island East fell by 2.2%, 2.7% and 2.8% respectively while overall Hong Kong Island rents recorded their lowest rate of decline since Q1/2020, registering a fall of 1.5%. Rents in Tsim Sha Tsui, Kowloon East and Kowloon West fell by 0.5%, 0.3% and 0.2% respectively, significantly more moderate falls than in previous quarters. 

In the uncertain environment, serviced offices are again popular, and we note further take-up by large operators in core business districts. The Executive Centre, with most of its existing serviced space fully occupied, expanded operations and took up the majority of 28 Stanley Street in Central. Regus, another well-known operator, was rumoured to have taken up two floors (around 23,000 sq ft) in Tower 535 in Causeway Bay, operating under its IWG brand. 

Rental declines have been milder in Kowloon with vacancy gradually absorbed, in particular in Tsim Sha Tsui and Kowloon East: Centaline Property Agency relocated from Central to take up 60,000 sq ft in Wharf T&T Centre in Tsim Sha Tsui, while Prudential relocated from Causeway Bay to consolidate their back-office operations in two floors (around 50,000 sq ft) in The Gateway Tower 5. Another insurance company, Bupa, took up multiple floors of around 92,000 sq ft in The Quayside in Kwun Tong. 

Vacancy rates stabilized at around 9.3% (5.8 million sq ft) but office buildings in some areas, such as Island East and Kowloon West, suffered more than others. Island East vacancy increased by 0.7 percentage points over Q3, which was almost entirely due to increased availability outside the Taikoo Place portfolio, in particular in North Point. Kowloon West vacancy increased by 1.0 percentage points with significant increases in availability in some older buildings in Cheung Sha Wan. Tsim Sha Tsui, on the other hand, saw vacancy rates decline by 0.7 percentage points with the Gateway portfolio seeing substantial take-up over the past three months.


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