Healthcare players to take over office spaces vacated by banks in Hong Kong

More banks and corporates are cutting their real estate footprint.

Grade-A office leasing transactions during the month were mostly dominated by cost-saving and downsizing deals. Rental levels in the CBD, such as Central and Admiralty, continued to contract amid the COVID-19 pandemic, so landlords in prime locations were more willing to offer rental discounts to tenants. According to Knight Frank, a new lease of 13,000 sq ft office space in 9 Queen’s Road Central by a Chinese Mainland charity foundation at about HK$60 per sq ft was recorded, which was about 15% lower than the rental level in Q1 2020.

Banking industry continued to review their real estate needs amid COVID-19. For instance, Standard Chartered gave up eight floors at Standard Chartered Bank Building in Central and three floors at Millennium City in Kwun Tong. The bank announced earlier that their staff will start using coworking spaces operated by IWG globally. Under the flexible work arrangements, more banks and corporates will cut their existing permanent office space, and rely even more heavily on flexible workspace. As a result, demand for flexible and agile workspace will increase.

While some multinational companies have downsized their office space with the adoption of work-from-home arrangements amid the pandemic, we expect this sizable vacant space to be taken up gradually by companies that have thrived in the wake of the pandemic, particularly those in the medical and healthcare sector, which are expanding their footprint in the core districts.

Here’s more from Knight Frank:

Office leasing momentum in Kowloon remained weak in January. Average monthly rents for Grade-A offices continued to shrink, reaching about HK$20 per sq ft. Leasing activity was concentrated mainly in Kowloon East, with leasing demand primarily from the manufacturing and electronics sectors. The sluggish leasing market has prompted landlords to further soften their attitude, resulted in rent reductions for most lease renewals.

Despite the low level of activity, some companies are capturing the market opportunity to commit to special deals, one of which was a 41,322 sq ft deal in Landmark East, rented by clothing manufacturer Crystal Group at HK$22 per sq ft. Another example was mobile application service provider Green Tomato’s lease of a 26,204 sq ft office in Harbourside HQ at HK$20 per sq ft. Technology giant Tencent’s lease of the 10,000 sq ft of office space in Gateway in the mid HK$50s per sq ft also caught market attention.

With weak business sentiment, tenants will continue to take a wait-and-see approach in the coming months. We expect the subdued leasing momentum to linger in February, given the quiet market following the typical Chinese New Year pattern.