• Office leasing market remained stable with Central (+2.9%) as the main rent driver in Q1
• The trade war, stock market and interest rate shadows are receeding
• Coworking operators pulled out of leasing deals in Hong Kong while expanding actively elsewhere
• Tenants start to weigh building quality over location
Hong Kong - 17 April 2019 Prominent real estate advisor Savills pointed out that the record low vacancy rates (Hong Kong Island: 1.8%; Kowloon: 2.6%) supported the slight rise in office rents over Q1. Central, as the main driver of growth (+2.9%), hit over HK$150 per sq ft per month net effective. Thanks to efficient new transport infrastructure links, tenants now pay more attention to new high-quality buildings, sometimes above location.
Overall Grade A office rents were up (+1.6%) and all districts have recorded positive rental growth for six consecutive quarters. Central (+2.9%) recorded the highest growth rate and highest rent (HK$150 per sq ft per month net effective), followed by Island East (+1.7%), Tsim Sha Tsui (+1.2%) and Wanchai/Causeway Bay (+1.2%). Island rents (+2.0%) continued to outperform Kowloon rents (+1.0%) in Q1/2019 in a trend visible since Q1/2018.
A question continues to hang over the future of co-working demand as KR Space, a leading co-working operator from Mainland China, has pulled out of three leasing deals totalling nearly 200,00 sq ft.
In 2019 and beyond, we will see more premium buildings in North Point. Both K11 Atelier King’s Road (487,486 sq ft) by New World and 218 Electric Road (143,996 sq ft) by Henderson Land, totalling over 600,000 sq ft, are green buildings. And new office buildings such as 226-240 Electric Road (around 105,000 sq ft) will be completed by 2022.
Mr. Ricky Lau, Deputy Managing Director & Head of Office Leasing said: “As new roads, rail lines, tunnels and bridges such as the recent Central-Wanchai Bypass have shortened travel times between Central and Island East, location is not the top priority for tenants anymore. So where is the most modern office stock found? Perhaps not in Central where the average age of a Grade A office building is almost 28 years.”
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “A robust office market seems to have shrugged off earlier concerns over interest rates, the trade war and financial market turbulence. Vacancy has maintained record lows, giving landlords some bargaining power and the ability to raise rents marginally across most districts.”