Hong Kong landlords start operating their own co-working spaces

Landlords had to become creative to meet their tenants' changing needs.

According to a report by Knight Frank, sentiment in Hong Kong Island's leasing market rebounded in August, leading to an uptick in rental levels, especially in the CBD. Headline rents in premium buildings such as Two IFC and AIA Central recorded increases of 6–8% during the month. With demand re-emerging in August, the Central grade-A office market recorded the lowest vacancy rate since November 2020.

"Landlords have become more adaptable and flexible to the changing needs of tenants. In a positive move to engage with and attract occupiers, some landlords are offering ready-to-move-in space to attract tenants. These new levels of fit-out provide tenants with almost-move-in-ready office space to varying degrees, helping to significantly reduce move-in costs for tenants and speed up the move-in process."

Here's more from Knight Frank:

Driven by the growing demand for hybrid workspace, more landlords have joined the bandwagon of operating their own co-working space. For instance, during the month, Shanghai-based Shimao Property Holdings opened “The Center Space”, a 23,600-sq-ft co-working space on the 76th floor of The Center.

As the needs of tenants have changed rapidly, we expect more landlords to embrace new approaches in their leasing strategies. Looking ahead, offering hassle-free, move-in-ready space and co-working space by landlords are some key market trends that we expect to gain steam.

Kowloon

Kowloon’s office market showed clear signs of bottoming out during the month, with a significant rebound in leasing activity. New leases were on the rise, with most of the deals concentrated in Kowloon East and Tsim Sha Tsui closing at an average rent of HK$22 per sq ft or less.

Tenants are filling the vacant space in premium buildings, which have been greatly bolstered by the strong leasing momentum. For instance, the vacancy rate of Millennium City 6 dropped from a peak of 17.1% to 12.4%, while the highest vacancy rate of 24.5% in Gateway Towers declined to about 20% in two months. There were more enquiries and inspections, especially for quality projects and new office developments, such as International Trade Tower in Kwun Tong and AIRSIDE in Kai Tak.

The rebound in activity resulted in a stark reversal in landlord attitudes. Some landlords started to firm up asking rents, especially for vacant space in easily accessible locations. Meanwhile, we note increased business confidence among tenants, reflected by their eagerness to review their real estate plans. We expect this to lead to a more stable trend and even a slight uptick in rents in some buildings in Q4 2021.