Hong Kong Island records office vacancy rate of 8.5% in January

Wan Chai had the highest vacancy rate of 11.8%

Hong Kong’s office leasing market started to show good momentum in the final quarter of 2021, but the resurgence of COVID-19 cases and the resulting restrictions pulled back the recovery. 

According to Knight Frank, tenants generally took a wait-and-see approach, leading to a high vacancy level of 8.5% for Hong Kong Island. Among the submarkets, Wan Chai recorded the highest vacancy rate of 11.8%. 

Here’s more from Knight Frank:

Driven by the anticipated return of US-listed Chinese enterprises and the growing appetite from finance and cryptocurrency firms, the rental level in Central, especially in premium Grade-A buildings, continued to pick up. For example, a multinational bank recently added 17,515 sq ft in Champion Tower for an in-house expansion. This trend is expected to persist until mid-2023, when the next batch of new office supply, including The Henderson and Cheung Kong Center II, become available in the CBD. 

Given the city’s experience in dealing with the pandemic, business activity and sentiment during the recent outbreak may not have been affected as heavily as it was last year. Rental levels in the overall market will be supported by an uptick in the CBD. However, other submarkets may witness a further reduction in rents. This will be especially evident in Island East, given 0.9 million sq ft of new supply in Two Taikoo Place in 2022.

Kowloon 

Market activity was strong, and rents in Kowloon continued to bottom out in the first three weeks of January. However, the outbreak of the fifth wave of the pandemic abruptly hampered market activity and business sentiment. Many on-site inspections were cancelled, and rents started to drop before Lunar New Year. During the month, most of the leasing activity was in Kowloon East and Cheung Sha Wan, mainly in the electronics and sourcing sectors, at an average rent of HK$22 per sq ft or less. 

Tenants reconsidered their real estate plans at the beginning of the year, leading to more transactions of sizable new leases at market level. For instance, financial institution China Merchant Securities relocated from Exchange Square in Central to a 37,500 sq ft office in AIRSIDE at HK$26.5 per sq ft, while logistics company FedEx rented 33,400 sq ft in Landmark East at HK$24.5 per sq ft. 

The fifth wave of COVID-19 disrupted the bottoming-out trend. Sizable relocation cases came to a halt starting in mid-January, and more short-term renewals and restructuring cases started to appear amid weak business sentiment. We expect tenants to slow down their business decision-making progress in the face of mounting uncertainties, resulting in subdued leasing momentum and a low level of activity in the first quarter.