Kowloon office leasing transactions up 20% in July

Tenants continue to favour Kowloon East.

Following a quiet period in the first half year, office demand in Kowloon began to pick up in July. According to Knight Frank, although the average transaction size remained under 3,000 sq ft, the volume of new leasing transactions saw a significant month-on-month (MoM) increase of over 20%. 

Additionally, the average monthly rent edged up slightly, from HK$22.8 per sq ft to HK$23.1 per sq ft. 

Here’s more from Knight Frank:

This trend supports our earlier expectation that the Kowloon office market will continue to establish a bottom this year as leasing activity gains momentum. Among the various sub-districts, Kowloon East continues to be the primary focus of tenants, with occasional interest in Kowloon West, particularly for newer developments, like 83 King Lam Street. 

Notably, leasing demand has shifted since the beginning of the year, moving away from a predominance of government institutions and companies from the Chinese mainland. We are now witnessing a resurgence in leasing activity across various sectors, including the insurance sector. For instance, AIA recently leased 24,636 sq ft at The Gateway in Tsim Sha Tsui to accommodate its expansion. 

Rents in the Grade A office market in Kowloon has been stabilised and were driven by the expansion of existing businesses and the growing preference for higher-quality office space. Tenants in Kowloon are actively seeking opportunities to upgrade their office accommodations at no extra cost. A notable example is Triumph International, a German sourcing company. Triumph relocated from an industrial revitalisation building in Kowloon Bay to Manulife Place in Kwun Tong. They lease a total of 35,750 sq ft of space at a comparable total cost due to space optimisation efforts. 

Overall, Kowloon has seen more signs of stabilisation as we enter the second half of the year. While these developments are insufficient to trigger a significant rebound in rental rates, they may prevent further declines in rental performance. Consequently, office rents in the Kowloon market are expected to remain flat in the coming months, providing tenants with a stable outlook for long-term planning regarding office leases.