, Hong Kong

Hong Kong office net absorption at its lowest level since 2001

Annual net absorption was −1,769,900 sq feet in 2020.

Leasing momentum softened in 2020, as the local economy weakened with the combined impact of US-China trade tension, local protests and the COVID-19 outbreak. According to Colliers, annual net absorption was −1,769,900 sq feet (−164,500 sq metres), the lowest level since 2001. Occupiers turned cautious and were seeking cost-effective real estate strategies.

Some MNCs opted to downsize their space while others relocated to more affordable, decentralized areas like Kowloon East, pushing the overall vacancy rate to 9.4% and the CBD vacancy rate to 7.7% at the end of 2020.

Meanwhile, the available stock vacated by MNCs has provided more options for new tenants to bargain. Mainland firms are gradually taking up more office space in the CBD. We believe the robust IPO market should help to bring in some new demand from mainland finance firms and wealth management companies in the next 12 months, while the beginning of the Biden administration in the US should reduce uncertainty and improve market sentiment.

Here’s more from Colliers:

In 2021, we expect to see 733,100 sq feet (68,100 sq metres) of new Grade A office supply, another low year after only 253,815 sq feet (23,580 sq meter) came online in 2020. As most new supply is planned for decentralized submarkets, including Wong Chuk Hang (45%) and Cheung Sha Wan (55%), we do not expect this to have a large impact on core areas.

We forecast Central rents in 2021 will fall by -8%, with overall market rents falling −7% YOY. However, we expect the rental correction will be front- loaded and bottom out in H1 2021, and we expect to see rents to stabilise in H2 2021, assuming the COVID-vaccine is available in H1, preventing bigger waves of the pandemic. Hence, we recommend tenants to review and secure their longer-term occupancy in first half of 2021 as the market bottoms out.

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