Throughout the beginning of 2019, the global economy remained shrouded in uncertainty. The impact of the US-China trade war, the current decline in the stock market, rising interest rates, and a downturn in the property market since H2 2018 have taken a toll in Hong Kong’s business environment by creating a more pessimistic outlook. This has led to landlords and occupiers from across industries to adopt different strategies for their real estate requirements for both the Hong Kong Island and Kowloon office markets.

Hong Kong Island market

Hong Kong Island is facing a more cautious occupier market, tenants are less inclined to move from their current premises, and decisions are taking longer as people wait for a little more clarity in the market. In turn, landlords have started to be more flexible towards negotiations and incentives. This is on the back of an increasing number of surrenders coming into the market.

In terms of the districts, Central is facing downwards pressure as incentives are being offered through lower rents, which means that effective rates are likely to go down. Wanchai and Causeway Bay are likely to remain flat, and North Point is likely to see some growth – because of the cheaper options and the new Central-Wanchai bypass, which has generated more interest in a price sensitive market.

Overall, the Island market has seen record rents. It has been a very expensive and active market, that could be heading towards a ‘breather’ in which things could normalize themselves. Meaning that occupiers will have more opportunities this year with better chances for negotiation.

Kowloon market

In Kowloon, despite the gloomy market conditions, the market performance across all major districts experienced a healthy rental growth in 2018. With the limited supply available in Tsim Sha Tsui, rental has increased far more than 8% in a year; in other major districts, Kowloon East and Cheung Sha Wan, increases of 4.2% and 5.8%, respectively, were also recorded.

In the office supply side, several Grade A developments are due for completion in 2019. These include NEO, The Quayside, The Gateway-Sunlife Tower, and 38 Wai Yip Street, which will total 1.9 million sq ft. Pre-leasing activities and commitments have been reasonable with some properties already reaching 50% leasing levels. Amid the current market climate, similar to the Hong Kong Island, landlords should be more flexible with their commercial terms. Likewise, portfolio landlords are likely to focus on retaining their current tenants.

Overall, rentals in Kowloon should remain stable during this year.

Currently, most of the new office supply in CBD2 is concentrated in Kwun Tong and Ngau Tau Kok, but moving forward Kai Tak will be the primary source of new office supply. The Major supply includes Nan Fung’s commercial project which consists of two office buildings and a retail complex – providing 1.96 million sq ft of space; as well as a new twin tower development from an international department store operator providing 1.09 million sq ft of space for commercial, entertainment and F&B facilities. Both developments are targeted to be completed in 2022. Additionally, three more commercial sites in the government land sale programme 2018-19, could provide a maximum GFA of 2.38 million sq ft. A comprehensive transportation network will be vital to the success of a newly developed business district as well as Kai Tak. The proposed Shatin-Central link (targeted completion in 2021) will connect Kai Tak with both the New Territories (in Tai Wai) and Hong Kong Island (in Admiralty), furthermore, the Environmentally Friendly Linkage System (EFLS) will become a major ‘in-district’ transportation system. Connecting all the business districts in Kowloon East, including Kwun Tong, Kowloon Bay and Kai Tak. Several urban development projects in the area are also aimed at improving the road and pedestrian traffic.

Kai Tak is in early development stages, with land sales and town planning still ongoing, but given the vast improvement in connectivity and newly developed Grade A commercial developments in the area, Kai Tak will become an integral part of the CBD2 commercial hub in Kowloon East.

Banking and finance

Banking and finance have seen growth and have continued to decentralize from the CBD. With the increasing rental gap between the CBD and decentralized areas, companies relocating to Kowloon East, as well as Island East and Wong Chuk Hang, have noted significant rental savings. Another trend for companies has been the adoption of a ‘swing space’ strategy for their expansions needs. Instead of securing a traditional tenancy agreement with a portfolio landlord, many banking and finance tenants have partnered with a co-working space operator for additional desk spaces in renovated premises – reducing their upfront renovation costs, capital expenditure, and increasing their flexibility in headcount and lease duration.


Insurance companies are also seeing growth in terms of headcount, and many are looking to consolidate from multiple locations to a single district; targeting office buildings, either new supply or existing stock, that can offer substantial space to cater their needs. Usually, such a consolidation strategy will demand a significant amount of space and hence allow the negotiation for a building’s naming and signage rights. Rather than adopting a ‘swing space’ strategy, insurance companies have explored flexible working strategies to further reduce their occupied area. However, more interestingly, the opening of Kowloon West’s Express Rail Link (XRL) in September 2018, providing short distance and long-haul train services to major cities in mainland China, has led to many insurers to relocate in and around the adjacent districts. Including Tsim Sha Tsui and Hung Hom to capture business from Mainland travellers.


In 2018 co-working operators were on an active expansion mode – contributing to major commitments in newly completed and renovated buildings. With multinationals continuing to explore ‘swing strategies’ in 2019, co-working spaces will continue to be viable options. However, with the current economic uncertainty, co-working operators are expected to be more cautious regarding their expansion and are likely focusing on prime buildings in Kowloon in 2019. In some cases, co-working operators have found themselves in difficult situations i.e. some have overpaid or overcommitted and face a challenge to either return some space or re-work their leasing strategies.

Other sectors

Kowloon’s toy sector is also facing several challenges with downsizing activities for both local and international players. For example, more recently, a toy company located in Manhattan Place, a Grade A office building in Kowloon Bay, has been searching for a replacement space as its head office declared bankruptcy. Generally, the trend for cost conscious companies has been the consolidation of their operations. In logistics and sourcing sectors, the drive for relocation and consolidation in 2019 will come from merger and acquisition activities.

The strategy for occupiers this year is simple – to take advantage of the market conditions before they turn around again. However, they should also be considering any market shifts around the Greater Bay Area initiative, which could position Hong Kong as one of the key gateways into the region. There’s plenty of interest, but some of the details remain somewhat fuzzy. Still, in terms of sector development, Hong Kong is likely to remain the base for financial, legal and professional services, while Shenzhen and Guangzhou focus on technology and manufacturing, respectively.

If you would like to know more about this year’s outlook or discuss potential strategies, please reach out to Chris Hui (, or Chris Currie (