Hong Kong, 26 April 2016 –  In a review of the Kowloon office market today, Colliers International points out that despite having a 6.44 million sq ft of new office supply in Kowloon in 2016 – 2017, demand for office buildings with premium specifications continues to rise and the rents outperform other average office buildings.

Despite concerns over global economic slowdown, Grade A office rents remained high amid a tight vacancy environment. The surge was underpinned by the demand from PRC-based financial firms as they continue to expand internationally. While Kowloon East can offer major cost savings for occupiers, it sees stronger take-up than Hong Kong Island due to the sizable volume of new supply.

The Hong Kong Grade A overall net absorption turned from a positive net take-up of 184,190 sq ft in Q4 2015 to a negative net take-up of 12,292 sq ft in Q1 2016. But in contract, Kowloon East sees a stronger take-up with a positive net absorption of 28,101 sq ft recorded in Q1 2016.

Speaking at the press briefing today, Joanne Lee, associate director of Research and Advisory, Hong Kong noted, “With availability in Central area tightening and rents rising, we expect cost-sensitive tenants to continue to move out of Central into more affordable locations. We predict total net absorption in Kowloon East to be 725,604 sq ft in 2016.”

The overall Grade A office vacancy rate remained at a low level of 2.7% in Q1 2016. As office supply in Central / Admiralty is getting tight, more tenants look to Kowloon East as an alternative. The vacancy rates in Kowloon East continued to trend downwards, with vacancy level dropping from 7.8% to 6.6% over the same period, thanks to the relocation of tenants for various reasons: downsizing, consolidating and/or upgrading.

Fiona Ngan, general manager of Office Services, Kowloon, commented, “In general, Grade A office rents in Kowloon will probably come under pressure and Kowloon East will see a 3% drop due to the new supply appearing in that district. Nonetheless, premium buildings have seen a rise in rents. Many new projects launched in recent years have adopted high-grade office specifications like BEAM / LEED certification with property management standard. While other average office buildings will possibly fall into a severe competition on rent, these buildings with desired parameters will outperform the rest of the buildings with a steady growth.”