Coronavirus Significantly Impacting Hong Kong's Office Market Demand

According to JLL's latest Hong Kong Office Market Monitor Report, Central's Grade A office rents dropped the sharpest among Hong Kong's core business districts as its vacancy rate reached 4% in January 2020, the first time in more than five years.

Office vacancies in major business districts continued to be on the rise, causing rents in the overall market to edge down by 0.9% m-o-m last month. The most severe decline occurred in Central's office market, which dropped 1.1% m-o-m to HKD 120.0 per sq. ft as the vacancy rate reached 4%, the highest since August 2014.

In Central, office leasing demand was weak as new lettings dropped 49% m-o-m. Activities were primarily driven by small expansions within the submarket. For instance, China Guangfa Bank has leased 13,000 sq. ft at One Exchange Square to relocate and expand out of another Grade A building within Central.

Alex Barnes, Head of Markets at JLL in Hong Kong commented, "The overall Grade A office market recorded a net withdrawal of 173,600 sq. ft last month. Immediate demand has weakened off the back of the coronavirus, as a number of businesses put decision making on hold.  Some pockets of activity exist, with the majority of demand in decentralized locations."

In the investment property market, the sales of office and retail properties remained very slow. Nelson Wong, Head of Research at JLL in Greater China and Hong Kong said, "Only a limited number of offices changed hands for relatively small lump sums. The few transactions predominantly took place outside of Central. Investors in the retail market have grown more cautious. Their interests are largely focused on small lump sum assets in non-core areas, pricing below HKD 30 million."