Hong Kong Island office rents slip 1.4% in October

Rents are expected to drop for the rest of the year. 

Overall rents on Hong Kong Island fell to HK$71.0 per sq ft in October, representing a 1.4% monthly decline and a 6.2% year-to-date decline. 

According to Knight Frank, overall rents in Central dropped 1.8% MoM, while some decentralised markets, such as North Point (-2.2% MoM) and Sheung Wan (-2.3% MoM) were even weaker. 

Here’s more from Knight Frank:

Flight-to-quality remained an occupier priority and drove leasing demand. Occupiers continued looking for office quality upgrades at lower rents, especially in prime locations. The Canada Pension Plan Investment Board leased two floors in The Henderson, totalling 26,000 sq ft, and will relocate from York House. Leasing demand from PRC companies was active during the month. For instance, social media giant ByteDance leased 15,000 sq ft in The Center as part of an expansion; it currently occupies 3,000 sq ft in Times Square. 

Overall, we expect demand to remain subdued in the short term, given the lack of positive catalysts for recovery. In addition, the record-high existing vacancies and abundant upcoming supply in Central will continue to encourage office landlords to lower rental expectations and offer flexibility to retain and attract tenants. We expect the downward rental trend to continue for the rest of 2022.

Kowloon 

Leasing activity in October moderated amid weakening market sentiment. As in September, most leasing transactions were under 3,000 sq ft with rents of HK$22 per sq ft or below. Electronics and sourcing companies remained a major demand driver over the month. 

Renewal cases supported the leasing market in October with a narrowing of rental declines. Office renewals have been gaining pace, as occupiers prefer to renew leases with landlords at more attractive rents or favourable terms, instead of relocating to new premises, which results in additional expenses. 

In light of the unlikely further easing of border restriction policies before the end of the year, the recovery of the Kowloon office market is expected to be delayed because of the lack of demand from both Chinese mainland and MNC tenants. Notwithstanding a rental decline towards the end of 2022, we expect positive rental growth in 2023, factoring in the return of Chinese mainland and MNC tenants.