Prime office buildings to lead rental recovery in Hong Kong’s CBD
Rents of Grade A1 offices in the area grew 3% from May-July 2021.
Hong Kong witnessed a decentralisation trend as occupiers seek other locations due to the high rents and limited availability in the CBD. However, Colliers notes that since H2 of 2018, Hong Kong’s Grade A office market has started to enter a correction phase as US-China trade tensions, social unrest and the COVID-19 pandemic gradually unfolded. Office space availability has consequently been increasing across different submarkets, including the CBD area. CBD rents have become more attractive and affordable, which were down by 26% from its last peak in March 2018.
“Lower Grade A office rents have narrowed the rental gap between the CBD area and other submarkets. Coupled with the new office supply around Central in the next three years, there should be more recentralisation and flight-for-quality options within the CBD area for occupiers,” said Rosanna Tang, Head of Research, Hong Kong & Greater Bay Area.
Here’s more from Colliers:
We expect to see a more pronounced divergence in rental and occupancy performance between prime and less-performing office buildings.
CBD Grade A1 offices witnessed a three-month rental growth of 3% from May to July 2021. Amongst the 48 Grade A offices tracked, seven buildings in the CBD witnessed rental rebound, with most of them having reputable landlords, better quality and good accessibility. The above suggests prime buildings are leading rental recovery in the CBD.
Through analysing the last five years’ occupancy, we identified 10 less-performing Grade A buildings in the CBD area. Eight of them shared two common features: being strata-titled and ageing over 30 years.
“Despite vacancy rates in the CBD reaching a recent high of 8.4% in May 2021, overall vacancy rates are skewed by certain ‘underperforming’ assets. Omitting outliers yields a healthier vacancy rate of 6.4% for CBD Grade A office as of July 2021,” said Chris Currie, Head of Occupier Services, Hong Kong.
“With flight-to-quality being a noticeable trend amid a tenants’ market, landlords are having to innovate and on occasion reposition their properties in order to respond to changing needs from occupiers in a post-pandemic landscape,” added Currie.
To find out more about the CBD office market, click here to download the full Colliers Radar.