OFFICE RENTAL HONG KONG

Apr 2024

Gross office leasing volume increased by 35% q-o-q to 1.3 million sq. ft. in Q1 2024, partly driven by relocation and consolidation demand in recently completed buildings.

Net absorption totalled 612,000 sq. ft., with 400,000 sq. ft. of this figure involving pre-leased space in three newly completed buildings.

Most submarkets except Greater Central reported positive net absorption. Occupancy in Hong Kong East rose by 71,600 sq. ft., the first growth since Q4 2022. Kowloon East registered 233,300 sq. ft. of net absorption.

New supply totalled 925,200 sq. ft.. Slow pre-leasing in new projects ensured overall vacancy reached another all-time high of 14.7 million sq. ft. or 16.7%.

The vacancy overhang saw rents fall 1.2% q-o-q, the 20th consecutive quarterly decline.

CBRE

Apr 2024

The leasing momentum of Grade A offices showed signs of improvement in Q1 2024. Yet, high vacancy rate with an abundant supply pipeline and corporate strategies all contribute to the softening of the office rental prices in 2024.

Colliers

May 2024

Lai Sun Development had agreed to sell 10% equity interest of AIA Central for a consideration of HKD 1.42 billion to AIA Group Limited. Upon transaction completion, the buyer will hold 100% interest of the building.

Residential: Monthly residential transaction volume hit the highest level since 2012 in April. Hong Kong Serviced Apartments is having a high volume of enquiries in the major business districts.

Retail: Total retail sales in March declined by 7.0% y-o-y, the first negative growth recorded since border reopening last year.

Industrial: Tesla reportedly expanded its maintenance and service centre in Tuen Mun with an addition GFA of 27,824 sq ft.

JLL

Q1 2024

HONG KONG ISLAND

Given soft market sentiment and limited demand, the overall average rent on Hong Kong Island fell further to HK$64.7 per sq ft in December, marking a 1.4% MoM drop or 6.9% YoY drop. In full-year 2023, Central experienced the largest decline among major submarkets, with the overall average rent decreasing by 10.2%. Despite the rental downtrend, the flight-to-quality trend continued. Companies from multiple sectors took advantage of the tenant-favoured environment to consolidate their office space. Certain expansion cases were recorded over the month. A US investment fund house, Franklin Templeton, took up a whole floor of Two International Finance Centre for office expansion. Futu Securities expanded its office space in the United Centre to approximately 20,000 sq ft. Simultaneously, there were an increasing level of enquiries and demand from Chinese mainland companies. We have noticed some newly set-up Chinese companies actively seeking small to medium-sized office space of 2,000 to 3,000 sq ft.

As office landlords are beset with record-high vacancies and unfavourable supply–demand dynamics, more of them have started slashing their asking rents or offering flexible leasing packages to attract tenants. Going forward, Knight Frank expects the office vacancy rate to remain high and overall rents on Hong Kong Island fall by 0–3% in 2024.

KOWLOON

Office demand continued to be soft due to the festive season. The average monthly rent was about HK$22 per sq ft, and the deals were dominated by offices with an average size of 3,000 sq ft or below. Activity remained lively in Kowloon East, with engineering companies the key demand drivers in December, while there is also a growing no. of corporates looking for serviced apartments in Central.

Despite the quiet market, there was growing demand from government and infrastructure businesses, supporting leasing market activity during the month. The Immigration Department leased a 24,000-sq-ft office space in Manulife Financial Centre; and a machinery company rented about 20,000 sq ft in Ever Gain Plaza in Kwai Chung. Echoing activity on Hong Kong Island, the flight-to- quality trend was prevalent. Haleon, a consumer healthcare company, moved its office from The Gateway to AIRSIDE, with an area of 9,000 sq ft.

Looking forward, we expect the Kowloon office-leasing market to gradually gain momentum in Q1 2024. With further improving market demand, a more solid positive effect should hopefully be seen in Q2, and mild rental growth of 1 to 3% is expected in the Kowloon market for full-year 2024.

Knight Frank

Q1 2024

• Positive economic growth has traditionally driven office demand.

• Demand translates into take-up except where space availability is constrained.

• Hybrid and work-from-home arrangements have weakened the relationship between economic growth and take-up.

• Employees are demanding greater amenity in and around the office.

• Investors and corporates are demanding ESG credentials from buildings.

• Two tier markets are likely to appear due to employee, corporate and investor demand.

• Outside China the majority of markets are seeing positive, if not healthy and sustainable growth.

• Where a mature market has limited supply, expect stable/ growing rents for ESG and prime offices.

• Tenant markets are expected in most major regional cities in 2024.

• Rental movements (positive or negative) in the cities we monitor will be modest this year.

Savills