Hong Kong new office letting transactions drop 20% in October

Tenants in Kowloon are favouring lease renewals over relocations.

Kowloon’s office leasing activities are declining in the lead up to the festival season, recording a 20% m-o-m drop in new letting transactions in October. Knight Frank says leasing activity was dominated by the sourcing and manufacturing sectors, at an average rent of HK$22 per sq ft or less. 

Tenants are now more cautious as signals of bottoming out become evident along with stabilizing rents, and they prefer to opt for lease renewals rather than relocation. Knight Frank adds: “Examples include lease renewals of Japanese logistics company Nippon Express, with 17,714 sq ft in Chinachem Golden Plaza, and multinational music corporation Universal Music, with 17,606 sq ft in Millennium City 6.”

Here’s more from Knight Frank:

More landlords are paying attention to environmental, social and governance (ESG) issues, and are demonstrating ESG commitments when reviewing their tenant mix. A large floor area in Skyline Tower was rented to a therapy service provider for special need individuals, showing the landlord’s growing social consciousness to choose tenants responsibly when filing vacancies. 

As we move towards the end of the year, we expect the activity level and rents to remain stable in Kowloon. We maintain our previous forecast of a 4% drop in average rent in the Kowloon office market for full-year 2021.

Hong Kong Island

With the return in demand from office tenants in Central, the recentralization trend became more evident in October, leading to a decreasing vacancy rate and a continuous uptick in rental levels in Central. Overall rental rates in Central saw a quarterly increase of 4.2%, reaching HK$113.6 per sq ft. 

But leasing demand in the non-CBD area was relatively weak, and landlords were more flexible in lease negotiations. Co-working operators grabbed the opportunity to expand at reduced rents. For instance, Swiss-based co-working space IWG rented two floors in Tower 535 in Causeway Bay, providing more than 300 workstations to respond to the latest hybrid workplace trend. 

Amid improved business sentiment, Henderson Land won the tender for Central Harbourfront Site 3 for HK$50.8 billion. The record-high land premium demonstrates developers’ strong confidence in Hong Kong’s Grade-A office market. By 2027 and 2032, the landmark project will add prime stock of 270,000 sq ft and 390,000 sq ft, respectively, of office space to the market, shaping a new office landscape in the CBD area.