Hong Kong Island office rents decline 2% in November

Wan Chai outperformed the other business districts.

Towards the end of 2023, more tenants in Hong Kong are sitting on the sidelines amid mounting uncertainty in the business environment. 

According to Knight Frank, office leasing momentum remained soft in November, with an accelerating rental decline. The overall monthly rent on Hong Kong Island fell to HK$65.6 per sq ft over the month, edging down 2% MoM or 5.6% year to date (YTD). 

Here’s more from Knight Frank:

Rents in Wan Chai outperformed among the major business districts, with mild YTD growth of 0.5%. Office space in Wan Chai has been gradually filled up owing to the affordable rent level, so some owners started firming up their asking rents. 

Amid the challenging economic environment, cost-competitiveness remained a pressing consideration for tenants. Given the significant amount of new supply, particularly in the CBD in 2024, with approximately 1.2 million sq ft. of new completions, vacancies in Central could continue to rise to an unprecedented level. This will exert pressure on landlords to lower rental expectations and offer flexibility to retain and attract tenants. 

Going into 2024, we expect rents on Hong Kong Island to continue their downward trajectory, falling by up to 3%. There will be a recentralisation trend, as occupiers seize the opportunity from falling rents in prime districts. We also foresee continued rising demand for brand-new office buildings. Those with better ESG and sustainability criteria will be more sought-after by occupiers in the market. Meanwhile, as the capital value of office buildings has dropped significantly over the past year, some cash-rich end-users and occupiers are expected to shift from leasing to buying office properties. 

KOWLOON 

Leasing activity in November was moderate amid soft market sentiment. Leasing transactions were dominated by premises of 3,000 sq ft or below, with rents of around HK$22 per sq ft. Leasing activity in Tsim Sha Tsui improved, supported predominately by demand from Chinese mainland companies. Electronics companies continued to be a major demand driver over the month. 

Flight-to-quality remained an occupier priority and supported leasing demand. Occupiers continued to look for a quality or location upgrade. A Taiwanese electronics company relocated from Millennium City 2 in Kwun Tong to The Gateway in Tsim Sha Tsui for 4,000 sq ft for a location upgrade. Growing demand from government organisations and Chinese mainland companies also continued to be key demand drivers. 

The presence of 7 million sq ft of available stock in the Kowloon market is exerting considerable pressure on landlords to offer generous incentives to attract tenants, which could include a renovation subsidy, a longer rent-free period and more flexible leasing terms, amid the downward rigidity of rents. Stepping into 2024, we anticipate a gradual improvement in sentiment in the Kowloon office market, with the overall rent expected to see a slight increase of 0% to 2%.