Office rents on Hong Kong Island down 1.5% in August

Island East recorded the biggest decline.

Overall rents on Hong Kong Island dropped further in August as record high vacancy persisted. According to Knight Frank, the monthly decline was 1.5%, recording an average rent of HK$72.9 per sq ft per month. 

In the first eight months of 2022, the average rent on Hong Kong Island overall dropped 3.6% compared to the same period last year. Island East and Sheung Wan recorded the largest declines of 8.7% and 5.7%, respectively.

Here’s more from Knight Frank:

Leasing momentum remained soft in August, with many tenants seeking to renew leases in favour of relocation. The limited Grade A office take-up was dominated by co-working operators and government agencies. Co-working operators are actively seeking quality space for operations. Singapore based co-working operator The Great Room expanded its footprint in the CBD, recently leasing an entire floor of 21,000 sq ft in Cheung Kong Center. 

Several office landlords plan to operate their own co-working space in Central and Wan Chai in the near future. In terms of government expansion, the Office of The Government Chief Information Officer leased 31,000 sq ft in Shui On Center in Wan Chai, and other government departments are looking for sizable offices in Quarry Bay. 

Looking ahead, the continued weak business sentiment is expected to prevail, and we expect landlords to offer more innovative and flexible leasing packages to retain and attract tenants. Although the border restrictions have been relaxed, the market will still require some time to absorb the abundant supply. Therefore, we expect the vacancy rate, especially in the non-core areas, to remain at a high level in the coming quarter, with rents under pressure. 

Kowloon 

Like Hong Kong Island, most tenants are sitting on the side-lines as leasing activity continued to slow down in August. Transactions in the Kowloon market were supported mainly by small-size deals of below 5,000 sq ft, with an average rent of HK$22 per sq ft or less.

During the month, leasing momentum was hobbled by stagnant demand. In response, landlords aggressively launched marketing campaigns and adjusting rents in an attempt to entice tenants. 

Given the worsening business sentiment and the lack of demand drivers from the Chinese mainland and multinational firms, the leasing market in Kowloon is expected to remain under pressure. We are conservative about short-term market performance, but remain optimistic towards the end of the year. We expect the overall growth forecast for the Kowloon office market to be in the range of 0% to 2% in full-year 2022.