Hong Kong office lettings down 14% in July

Monthly net take-up was -277,100 sq ft, the 12th consecutive month of negative figures.

According to JLL, new lettings in July continued to slow, dropping 14% m-o-m, as the city’s office market embattled increased fear and uncertainty from the third wave of COVID- 19. Most leasing activity occurred outside of Central as tenants elected for cost-saving options. Among the more notable transactions, Blue Pool Capital reportedly leased 16,000 sq ft (lettable floor area or LFA) at Hysan Place in Causeway Bay to relocate and expand out of Central, while JobsDB leased 14,700 sq ft (LFA) at PCCW Tower in Quarry Bay to relocate out of non-Grade A offices in Causeway Bay.

In Central, negative net take-up amounted to 29,200 sq ft as the vacancy rate rose to 5.7%. The submarket also continued to see tenants surrendering spaces due to murky business prospects. As of end-July, surrendered space in Central accounted for 2.1% of the Grade A office stock in the submarket, the first time since January 2011 when the surrender rate accounted for over 2% of the stock.

Rental decline abated slightly in July. Overall office rents dropped by 0.9% m-om, the first time since February 2020 when rent fell less than 1%. Central rents recorded the least decline (-0.7% m-o-m) among the major office submarkets on Hong Kong Island, while the sharpest rental contraction occurred in Tsimshatsui (-1.5% m-o-m) as the vacancy rate reached 8.4%, the highest among the major office submarkets outside of Kowloon East.

Due to the wide bid-ask gaps for assets, the number of investment transactions remained low. Among the more notable ones, Most World Limited reportedly bought a small unit at the low zone of China Merchants Tower in Sheung Wan for HKD 60 million (or HKD 20,562 per sq ft). The reported unit price is the lowest recorded for the property in more than four years.