Hong Kong Grade A office vacancy hits highest levels since 2003

The total volume of vacant space is at a record 9.8 million sq ft.

As firms continue to implement downsizing and cost-cutting initiatives, the overall vacancy in Hong Kong’s Grade A office sector increased by 0.3-ppt to 11.9%, the highest since Q3 2003. 

According to CBRE, the total volume of vacant space is now at a record 9.8 million sq. ft. Except for Central, all major submarkets ended the quarter with double-digit vacancy rates.

Here’s more from CBRE:

Gross leasing activity fell 23% q-o-q to 855,700 sq. ft. in Q2 2022 as the fifth wave of COVID-19 constrained inspection activity in the opening month of the quarter. Pre-commitments to upcoming office buildings accounted for 30% of the leasing volume. H1 2022’s new leasing volume reached 2.0 million sq. ft., a decline of 6.7% y-o-y.

After turning positive last quarter, net absorption fell back into negative territory in Q2 2022, reaching -279,000 sq. ft., amid a wave of downsizing. Net absorption nevertheless remained positive at 185,400 sq. ft. in H1 2022.

Overall rents fell by 0.3% q-o-q in Q2 2022 following a 0.6% drop in the preceding quarter. However, this marked the smallest q-o-q fall since Q2 2019. This resulted in a 1.0% rental decline in H1 2022. Rents in Greater Central and Kowloon East remained stable and outperformed those in other major submarkets. Hong Kong East registered a rental drop of 1.5% q-o-q, making it the weakest performer among all submarkets.

Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong: “The outbreak of the 5th pandemic wave constrained inspection activities in the first few months of the year, resulting in a drop in leasing volume in Q2. The outbreak also led to delays in the issuance of some building Occupation Permits.

As the trend of downsizing and cost-saving continued, vacancy rates in all submarkets increased to double digits in Q2 except for Central, and the total vacant space in Hong Kong hit record high. With business momentum forecasted to resume along with the potential return of Chinese enterprises, leasing activity is expected to increase in H2 2022. From the occupiers’ perspective, users will continue to enjoy low rents and creative rental packages due to increased opportunities from new office supply in the following quarters.”