Hong Kong Grade A office rents down 2.3% in Q3

Hong Kong East saw the steepest decline of 4.6%.

Rents in Hong Kong’s overall Grade A office market declined 2.3% q-o-q in 3Q23, with almost all submarkets registering marginal declines. JLL noted that rents in Central dropped by 2.9%, while rents in Wan Chai / Causeway Bay and Hong Kong East dropped by 2.2% and 4.6%, respectively. 

Tsim Sha Tsui, on the other hand, registered a rent growth of 0.2% due to limited premium office space.

Here’s more from JLL:

Grade A office market sentiment was relatively weak in 3Q23, with overall demand subdued amid low levels of new commitments. Net absorption in the overall market was 71,200 sq ft during the quarter; however, the year-to-September figure remained in negative territory.

The flight-to-quality trend continued to be significant, particularly in submarkets that have an abundance of high-quality office space available. Among the handful of new lettings, the Hospital Authority leased around 100,000 sq ft (GFA) at Harbourside HQ in Kowloon Bay to relocate within the same district.

One Grade A office project completes in 3Q23

During the quarter, 83 Wing Hong Street in Cheung Sha Wan was completed, adding 264,800 sq ft to the market. The building is intended for stratified sale.

The overall vacancy rate rose slightly to 12.7% as of end-September, from 12.6% as of end-2Q23. Central saw its vacancy rate rise to 9.6%, a 0.2 percentage point (ppt) rise from end-June. Meanwhile, vacancy rates in Tsim Sha Tsui and Kowloon East dropped by 0.8 and 0.9 ppts, respectively.

Outlook: Modest demand and high vacancy weigh on rent growth

We expect rents to fall further before bottoming out, albeit in a rather modest manner, for the rest of 2023. The downside risks are due to weakness in the global economy and a slower-than-expected recovery in Mainland China. In addition, there remains about 2.8 million sq ft of supply to be delivered by year-end, which is potentially a drag on rent growth.

Looking forward, we expect to see more leasing enquiries translate into actual transactions. However, the prevailing trend in the market is expected to be of relocations and consolidations towards cost-effective submarkets. While positive net demand will likely be seen due to pre-commitments in new supply, rents are expected to remain under pressure due to limited expansion demand.

Note: Hong Kong Office refers to Hong Kong's overall Grade A office market.