Why were some of the new offices in Hong Kong difficult to lease out?

That is despite offering attractive rental levels.

Most companies in Hong Kong were not in expansion modes with business prospects still far from certain. 

According to Savills, even with availabilities in non-core area remaining high and rents affordable, cost-saving relocations were hard to come by as fit-out and reinstatement CAPEX could easily reach HK$1,000 to HK$1,500 per sq ft, which upon amortisation would still make a HK$15 to HK$20 per sq ft rental savings unjustifiable on a 6-year lease term, not to mention these CAPEX had to be paid upfront. 

Here’s more from Savills:

That might be one of the many reasons why brand new office buildings with modern specifications but bare shell conditions were difficult to lease out even at attractive rental levels. Fully-fitted office premises, on the other hand, were attracting considerable interests for the time being. 

While it is well-documented there are more than 9 million sq ft net of vacant office space in the market, the distribution of such vacancy is not even, as offices with higher specifications, better views / locations and with more focused on green features (and thus with green building accreditations) are more highly sought after, as more companies, in particular multinationals, are looking for premium quality and collaborative office premises with ESG accreditations, and rental savings is only one of their concerns. 

Looking ahead, with another 7.5 million sq ft net of new supply in the pipeline, most of them built to the highest standards with ample green features and accreditations, we would expect tenants’ flight to quality, with these new buildings eventually outcast their older counterparts. 

Older existing buildings with limited features would therefore need to fight for corporate tenants with more attractive rental packages / CAPEX subsidies, or to gradually shift their positioning to cater more service trades, such as beauty, medical and educational, in order to survive the coming wave of new supply.