Hong Kong Office Rents Drop in all Submarkets

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Office market rents dropped across all submarkets in Hong Kong for the first time since the second quarter of 2009, according to Savills Research. 

Expansion demand remained subdued in the fourth quarter, with vacancies across all submarkets except Central increasing at a rate of 0.1 to 1.8 percentage points.

"Markets are failing to find a firm direction as rents drift and take-up remains lackluster," Simon Smith, Savills Research, said in the report. 

In Central, Grade A office rents dropped 1.3 percent quarter-over-quarter, resulting in a 6.4 percent drop in rents for 2013 and an accumulated drop of 21 percent since the most recent peak in the second half of 2011. 

In Wanchai/Causeway Bay, rents dropped slightly by 0.5 percent, while vacancy rates increased by 0.2 percentage points in the fourth quarter. 

"Rents have dropped for two consecutive quarters as the short-term positive demand shock due to the redevelopment 'refugees' of Somerset House eventually relocating," the report states. 

Although rents recently dropped 0.7 percent in Island East, the first decline since mid-2012, rents increased 7.9 percent in 2013 because of the "Swire effect."

In December, Swire acquired half of the ownership of the 389,000-square-foot DCH Commercial Center from CITIC Pacific, further strengthening its influence in the district.

In Kowloon, rents dropped again in the fourth quarter, falling by 0.8 percent, 0.5 percent and 0.1 percent in Tsim, Sha Tsui, Kowloon East and Western Corridor, respectively. 

Looking ahead, Savills expects the Grade A office market to decline by five percent in 2014, as the global economic recovery remains uncertain and firma are still wary of expanding or increasing staff.

Rents could also experience downward pressure as the firm expects the completion of two Grade A office projects in 2014, one in Kowloon West and one in Kowloon East, providing 353,000 square feet of net office space.