Widening Office Rental Gap in Hong Kong Driving Decentralization

Burberry, which currently has offices in Causeway Bay, will relocate to Swire Properties' Taikoo Place in Quarry Bay, while Volkswagen, another tenant from Causeway Bay will move to Billion Centre in Kowloon Bay.

Rents in Wanchai/Causeway Bay grew 0.3% m-o-m to HKD 62.6 per sq ft last month, while Grade A office rents in Hong Kong East and Kowloon East remained unchanged at HKD 47.6 and HKD 33.9 per sq ft, respectively.

In Central, limited availability along with slowing PRC demand curbed leasing activity with the total number of new lettings falling 70% m-o-m. However, Central's office rents grew a further of 0.1% m-o-m to HKD 107.5 per sq ft in July on the back of a tight vacancy environment. The vacancy rate in Central was only 1.5% at the end of July.

Supported by domestic expansion requirements from the sourcing and trading sector, the Tsimshatsui occupier market grew for the first time in five months with net take-up amounting to 11,000 sq ft in July. All other major office submarkets contracted slightly as slowing demand and lease expiries returned space to the market, leading the overall office market to record a net withdrawal of 115,300 sq ft.

Alex Barnes, Head of Hong Kong Markets at JLL said, "The transacted office market was seasonally slow in July, despite a number of ongoing negotiations.  We expect a pick-up in transactions in lower cost alternatives to Central, most notably Hong Kong East, Wong Chuk Hang and Kowloon East for the remainder of the year.  Reduction in business costs remains a key theme and these districts all provide a significant rental reduction to traditional core markets."
 
Denis Ma, Head of Research at JLL in Hong Kong commented, "The leasing market continues to show signs of slowing with the occupier market contracting for the third successive month. Unlike in previous months, however, there were no large lease expires in July, suggesting that demand is indeed slowing.