Hong Kong Island office vacancy rate reaches 19-year high of 9.2% in July

It is the highest vacancy rate since 2003.

According to a Knight Frank report, most tenants on Hong Kong Island delayed their real estate decision-making, resulting in a significant drop in leasing activity. 

Given the slow absorption of office space on Hong Kong Island, the report reveals that the overall vacancy rate in July surged to 9.2%, reaching a new height not seen since the SARS outbreak in 2003. 

Here’s more from Knight Frank:

Most of the vacant space is mainly in non-core areas, such as Wong Chuk Hang, Wan Chai, and Island East. Rents in the overall Hong Kong Island office market fell by 1.6% on a quarterly basis to HK$74 per sq ft per month, with Wan Chai and Quarry Bay recording the highest quarterly drop of 3.4% and 2.9%, respectively. 

New supply is putting imminent pressure on the leasing market. Flagship projects slated for completion by 2023 include The Henderson, Cheung Kong Center II and the 46-56 Queen’s Road East Redevelopment, collectively adding 1.2 million sq ft of GFA to the market. These new office buildings are already competing with existing Grade A office space. 

For instance, this month, the global investment firm The Carlyle Group confirmed the relocation of its Asia Pacific headquarters from Two Pacific Place to The Henderson, where they will lease a c.20,000-sq-ft office. 

The Hong Kong Island office market’s high vacancy will continue to be further impacted by abundant new supply and negative absorption. Before the border restrictions are fully relaxed, we expect landlords of existing Grade A buildings to be more flexible and willing to further reduce rents in reaction to growing competition. We forecast that Hong Kong Island office rents will fall 3-5% from their current level in July to year-end.