Hong Kong office rents to drop by up to 18% in 2020

Landlords are expected to be more lenient and offer significant rent reductions.

The ongoing pandemic is causing businesses to reconsider their workplace strategies, with some adopting a work-from-home setup, and some shrinking their office footprint altogether. Knight Frank notes that some businesses are raising the desk-sharing ratio, instead of the conventional office setting of one-person workstations, thereby reducing overhead.

Amid the current market downturn and mounting uncertainty, Knight Frank expects landlords to be even more flexible in lease negotiations and to offer larger rent reductions. In view of this, they adjusted the full-year forecast for the overall Hong Kong Island office rental market further downward from 10-12% to 15-18%.

Kowloon

July leasing activity in Kowloon continued to be low. Most of the deals were dominated by renewal leases of small- to mid-size units of less than 5,000 sq ft. As companies have sought bargain deals in the recent down market, several entire-floor new letting cases were recorded in buildings with major rent adjustments.

As the decentralisation trend gains steam, it is noteworthy that the vacancy rate in Tsim Sha Tsui soared from 2.9% to 7.5% within a year, reaching a 15-year high. While in non-core districts such as Kowloon East, the vacancy rate remained at a double-digit rate.

Rents in the Kowloon office market are expected to continue to drop, but given the decentralisation trend, the extent of the adjustment will continue to vary significantly by district.