Hong Kong Grade A office sector sees ‘longest local market downcycle in history’: CBRE

Q3 marked the eighth consecutive quarter of negative net absorption.

The leasing volume in Hong Kong’s Grade A office sector was 1.3 million sq. ft. in Q3 2021, largely on par with that in the previous quarter. CBRE says this brings year-to-date volume to just under 3.4 million sq. ft. Leasing activity, however, continued to be underpinned by relocation and consolidation demand. 

“Owing to limited new and expansionary demand, total occupancy contracted by a further 119,320 sq. ft. in Q3 2021, the eighth consecutive quarter of negative net absorption, and marking the longest local market downcycle in history. Kowloon East was the only submarket to achieve growth in occupancy this quarter, recording a slight gain of 28,000 sq. ft,” said CBRE.

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Overall vacancy edged up by another 0.2-ppt to 11.0%, pushing up the total volume of vacant space to another new record of 9.0 million sq. ft. Hong Kong East saw the sharpest jump in vacancy, with its figures reaching 8.5%, a 16-year high. Vacancy in Greater Central was unchanged at 7.3%.

Improved leasing momentum ensured the rental decline continued to soften this quarter, with overall rents falling 0.9% q-o-q following a 5.3% decline in H12021. No major submarket reported rental growth in Q3 2021. 

Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong: “Even though the leasing volume continue to pick-up steadily where corporates tenants continue to review their real estate portfolio as rents show signs of bottoming-out; overall occupancy in Q3 continued to contract due to high vacancy and sufficient supply in the pipeline. Rents of Grade A offices declined by a milder rate in Q3. Should the quarantine measures be loosened – marking the return of inbound travelling –office leasing demand from mainland Chinese companies is expected to dial up as a result.”