Savills News

Hong Kong Grade A office rents hit record high, but growth slows in Q2

Hong Kong – 09 Jul 2019 Prominent real estate advisor Savills pointed out that despite the positive rental growth for seven consecutive quarters (+0.8%) in all districts, the rate of growth was lower than the 1.6% rise posted in the previous three months. While decentralization will be given a further boost with the completion of new infrastructure, vacancy in core business districts is expected to remain low.

• Kowloon rents outperformed Island rents over Q2
• Family offices and virtual banking are emerging as two new demand drivers
• Availability in core areas will remain tight as new supply out to 2023 will be concentrated in non-core districts

Hong Kong – 09 Jul 2019 Prominent real estate advisor Savills pointed out that despite the positive rental growth for seven consecutive quarters (+0.8%) in all districts, the rate of growth was lower than the 1.6% rise posted in the previous three months. While decentralization will be given a further boost with the completion of new infrastructure, vacancy in core business districts is expected to remain low.

Central rents registered an increase of 0.9% in Q1, down from 2.9% in Q1. Rents in Wanchai / Causeway Bay, Island East and Tsim Sha Tsui also rose more slowly. The situation was different on the other side of the harbour as rents in Kowloon East and Kowloon West increased by 1.0% and 1.3% QoQ respectively, higher than the 0.5% and 1.2% growth recorded in Q1.

Along with the slower growth, the overall office occupancy rate fell to 96.9% from 97.4% recorded in Q1. The vacancy rate on Hong Kong Island reached 2.3% (0.77 million sf net) at the end of June, up from 1.8% (0.58 million sf) at the end of March, while the vacancy rate in Kowloon stood at 4.1% (1.0 million sf net). The modest increase in vacancy rates has reduced the bargaining power of landlords, however, availability of high quality office in core areas will remain tight, as only four major office projects will be completed on Hong Kong island between 2019 and 2022 (One Hennessy - 315,000 sf, 2019; K11 Atelier King’s Road - 487,000 sf, 2019; Two Taikoo Place - 1.0 million sf, 2021 and Landmark South - 200,000 sf, 2022) and they are all located outside Central.

Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Regarded as one of the most important financial centres in the world, Hong Kong continues to attract international businesses and talent. However, the average Grade A office rent in Central is now at an 80% premium over Chiyoda Ward in Tokyo and accommodation costs are beginning to erode the city’s competitiveness compared with its nearest rivals Singapore, Tokyo and Shanghai. New demand drivers are emerging as limited supply on Hong Kong island suggests continuing support for rents, even if room for strong growth is limited.”

Mr. Ricky Lau, Deputy Managing Director & Head of Office Leasing said: “Family offices, although typically small in terms of area occupied, are actively looking for space in prime locations and are willing to pay prime rents. Among other demand sources, co-working operators are still active provided some landlords are prepared to subsidize capital expenditure. In particular, the newly established virtual banks are looking for space in non-core areas.”

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