10 August 2012
Overall Grade A office rents are projected to fall 4% over the next 12 months
Despite continued external uncertainties clouded by Eurozone debt crises, Hong Kong’s Grade A office saw strong demand in 2Q 2012, driven by new set-ups and sustained demand growth in the non-banking and finance sector. It was proven by the significant increase in net take-up of Grade A office premises in the market, soaring from a contraction of 39,000 sq ft in 1Q 2012 to an uptake of 670,000 sq ft in 2Q 2012.
According to Colliers International’s Hong Kong Office Market Research & Forecast Report 2Q 2012, the stronger-than-expected demand from non-banking and finance companies and the ongoing relocation of cost-sensitive tenants compressed the overall Grade A office vacancy rate by 30 basis points quarter-on-quarter (QoQ) to 4.7% in 2Q 2012. This was lower than the historical average level of 5.0%.
Similarly, Grade A office rents also experienced improvement at the same time. After falling for three consecutive quarters, the overall Grade A office rental decline tapered off notably from 5.5% QoQ in 1Q to merely 0.7% QoQ in 2Q 2012. In Central / Admiralty, the Grade A office rental fall registered an even more significant slowdown from 8.9% QoQ to 2.0% QoQ over the period between the first two quarters this year.
“Although budget cuts in some multinational companies resulted in softened demand for top-tier Grade A office buildings with asking rents of over HK$120 per sq ft per month, Central Grade A offices asking for monthly rents at below HK$80 per sq ft were in high demand, which stabilised rents in the district,” explained Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.
Meanwhile, the other key business districts, including Wanchai / Causeway Bay, Island East, Tsim Sha Tsui and Kowloon East, recorded growth in Grade A office rents, which ranged from 1.3% to 2.3% QoQ in 2Q 2012.
On the sales front, investment sentiment in the office market remained positive during 2Q 2012. The total value of investment sales transactions, with a total consideration of over HK$30 million each,rose 40% QoQ to HK$10.7 billion in 2Q. The en-bloc sales transaction of No. 50 Connaught Road Central, which was sold for HK$4.88 billion, was under the spotlight and underpins the robust increase in investment volume.
“Looking ahead, overall Grade A office rents are projected to edge down mildly by 4% over the next twelve months. Meanwhile, the average Grade A office rent in Central / Admiralty is expected to see a decrease at a slightly lower rate of 3% in view of the limited supply,” expected Lo.