Kowloon office relocations drop by 19% in February

But average rents for relocations increased by 10%.

The Kowloon office market experienced relatively stagnant conditions in February according to a Knight Frank report, largely due to the CNY holidays, which delayed decision-making and led to a significant focus on lease renewals.

As a result, relocations fell by 19% compared to January.

Here’s more from Knight Frank:

Despite the decrease in overall transactions, average rents for relocations surged by 10%. This uptick can be attributed to tenants’ increasing interest in prime locations such as Tsim Sha Tsui, where rental rates have become more appealing following recent market corrections. This trend is further highlighted by declining vacancy rates in iconic commercial buildings, with Harbour City’s office portfolio witnessing a reduction in vacancy from over 15% to nearly 10%. Notably, the International Commerce Centre completed a substantial gross transaction of 27,000 sq ft with HSBC, underscoring selective demand for highquality office spaces.

However, we are cautious about February’s average rent increases as these transactions focus on high-value locations that do not represent the market. Given the ongoing negotiations in decentralised Kowloon areas and a notable 40% difference between core and decentralised markets, it is our view that the overall rent is likely to experience a decline in the coming months as more deals are finalised in lower-rent locations like Kwun Tong and Cheung Sha Wan.

Looking ahead, the Kowloon office market is expected to stabilise at its current low levels amid weak demand across key business sectors. Landlords will likely continue to engage in aggressive competition, offering further incentives and rent discounts to attract tenants, particularly for newer properties facing higher vacancy rates. This competitive landscape creates opportunities for tenants in strong positions, facilitating an increase in early negotiations and lease restructures within the market.