‘Recentralisation' trend now more evident in Hong Kong’s office market

Prime office rents saw a quarterly increase of 2.6%, signalling an improved leasing momentum in the CBD.

With overall business sentiment now improving, firms have been actively looking for premium office buildings in prime locations within Hong Kong’s CBD. 

According to Knight Frank, rents in Central have risen for two consecutive months, with a quarterly increase of 2.6%. However, non-CBD areas Wan Chai and Causeway Bay recorded a decline of 3.5% and 1.5% QoQ, respectively. 

Here’s more from Knight Frank:

As the current rent level in CBD is on par with that in the post-global financial crisis in 2010, the trend of “recentralisation” has been more obvious, amid a surge in demand for prime office buildings. One recent example was the new lease of a 24,156-sq-ft premium floor space in Two IFC in Central. After fierce competition by several sizable corporations, global financial group Amber Hill eventually took up the space and moved to Two IFC from One Hennessey in Wan Chai. 

Given the improved business sentiment, some tenants, especially in the financial services sector, previously located in non-CBD areas, are looking to maintain a presence in Central. For instance, HashKey relocated from Wong Chuk Hang and leased an entire floor of 10,150 sq ft in Three Exchange Square, becoming the first cryptocurrency firm to move into the Exchange Square complex. 

As Central’s rental premium over the rest of the market has narrowed, more tenants are interested in upgrading their office environment and relocating to prime locations in the CBD. We expect leasing momentum in Central to remain upbeat, beginning an upward rental trend in the district. 

Kowloon 

Leasing activity for Kowloon Grade-A offices maintained a stable trend in September, with most of the deals in Kowloon East at HK$22 per sq ft or below. Demand was driven by the electronics and manufacturing sectors. Leasing sentiment was sustained by some sizable transactions of 10,000 sq ft or above. 

Some tenants continued to pursue office space optimization amid stabilized rent. For example, sportswear company Nike moved from Exchange Tower to International Trade Tower in Kwun Tong with an area of 54,000 sq ft, a 35% reduction in size, at HK$29.5 per sq ft. 

Meanwhile, some tenants seized the opportunity to relocate their offices from Hong Kong Island to the other Grade-A office buildings with larger floor plates in Kowloon at more affordable rents. For instance, Chinese mainland professional firm Zhonghui Anda CPA relocated its 6,243-sq-ft office in Citicorp Centre in North Point to Enterprise Square V, where it leased a 17,400-sq-ft space at HK$21 per sq ft. 

Stepping into the last quarter of 2021, the signal of bottoming-out is more visible in the leasing market. We expect both rents and leasing sentiment in the overall Kowloon market to remain fairly stable in the near term.