Hong Kong Grade A office rents won’t rebound until 2022

Rents are expected to increase by 1-3% in the first half of 2022.

Although vacancy rate of Grade-A office buildings in the core area of Central did not deteriorate further in April, vacant office space in non-core business areas continued to rise this month, according to Knight Frank.. As for rents, the high vacancy rate puts a certain pressure on rents, with rents trending downwards. 

“We expect Grade-A offices on Hong Kong Island to fall by 5-10% this year. Although some office buildings still record high vacancy rates, with COVID-19 pandemic gradually easing, and the economy picking up, investor confidence has been restored, and the unemployment rate has fallen. We believe the overall Grade-A office rents on Hong Kong Island will stabilise in the second half of this year. We are confident that Grade-A office rents on Hong Kong Island may rebound in the first half of 2022 and increase by 1-3%,” says Wendy Lau, Executive Director and Head of Hong Kong Office Services.

The pandemic has affected the global economy and business activities. Companies generally put cost savings, operational efficiency, and provide flexible working environments and lease terms as the top priorities. “Nevertheless, we have discovered some new trends in the office market. Under a low rent environment, many companies have opted to "re-centralise", improve the building specifications of office buildings, consolidation, or start to increase headcount due to the decline in the unemployment rate and reconsidering the expansion of office space, I believe the above factors will help the vacancy rate drop to some extent,” adds Lau.

Here’s more from Patrick Mak, Knight Frank’s Executive Director, Head of Kowloon Office Services & Head of Tenant Representation, Greater China:

Despite the Kowloon Grade-A office rent falling in 1H 2021, cost-optimisation and downsizing are still the main theme for Kowloon office occupiers. Centralised Kowloon office vacancy rate reached a historical high and rent faced tremendous downward pressure with more vacancy looms in and a weakening demand. For decentralised Kowloon, office vacancy rate and rent remained stable and supported by relocation demand from Centralised Kowloon.

There is limited Grade-A office supply scheduled for this year but there will be abundant Grade-A office supply to be introduced in 2022 & beyond. The upcoming supplies are mainly located in decentralised Kowloon. We expect the Kowloon office market rent to stabilise in 2021 with a growing rate of COVID-19 vaccination in 2H 2021.