Hong Kong Island office rents drop 7.6% in February

Leasing activity in Causeway Bay and North Point was quiet.

A Knight Frank report revealed that the Hong Kong office leasing market was mostly stagnant in February due to weak sentiment and the Chinese New Year holiday. Transaction volume and rents across all major office submarkets contracted further. 

The overall average Grade A office rent in Hong Kong Island saw a decline of 1.6% MoM and 7.6% YoY to HK$63 per sq ft in February. Leasing activity in areas such as North Point and Causeway Bay was particularly quiet. 

Here’s more from Knight Frank:

Overall business sentiment was downbeat during the month, as businesses downsized operations under the pressure of the slow economic recovery. Some international law firms and sizeable Chinese-based finance and real estate corporations offloaded prime office space in the CBD. There were also a handful of decentralisation moves from these companies, if not a full retreat from the Hong Kong market.

New leasing demand was limited and piecemeal during the month. Characterised by small- to medium-sized space requirements, leasing activity was underpinned mainly by a few non-finance, Chinese-based technology and innovation companies.

Kowloon

Given the soft market sentiment towards the CNY break, leasing momentum tapered off in February. Transaction volume plummeted significantly, with new letting transactions dropping by half MoM. 

The average monthly rent in the Kowloon market was HK$23.8 per sq ft in February, and most of the transactions involved an average size of about 4,800 sq ft. Small- to medium-sized deals dominated the leasing market, with electronics and sourcing companies the major take-up sources.

The insurance sector and government policy-driven organisations were the key demand drivers of office space in the Kowloon market. Examples include an international insurance company, which leased 54,000 sq ft. on a low floor at Airside, and a local university, which has benefitted from the recent changes in the education policy, leased two floors totalling 40,000 sq ft. at The Millennity. However, these demand drivers were mostly stimulated by new policy and has no sustained demand. We expect market demand to decline from Q2 onward. 

There appears to be leasing demand from tenants moving from Hong Kong Island to Kowloon, but it is hard to discern a trend at the moment. In the near term, without any new positive factors to provide strong support for the market, transactional volume should remain tepid, with diminishing demand.