9 November 2012

Rental growth is projected at 6% in the next 12 months

According to the Hong Kong Office Market Research & Forecast Report 3Q 2012, the local Grade A office leasing market saw improving signs. Rents have already bottomed out and resumed mild growth, while vacancy rate kept unchanged compared to the previous quarter.

In 3Q 2012, despite a slowdown in the overall net take up due to weaker demand and limited stock for lease in the marketplace, the overall vacancy rate was virtually stalled in 3Q 2012. However, the vacancy rates for most submarkets on Hong Kong Island trended upwards, while those in Tsim Sha Tsui and Kowloon East compressed further.

“Due to falling rent affordability of Central Grade A office tenants and the subsequent softening demand, the average Central/Admiralty Grade A office vacancy increased 40 basis points (bps) to 5.5% in 3Q 2012,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. “In contrast, relocation demand for downsizing, consolidation and /or upgrading pushed down the average vacancy rate by 80 bps to 0.9% in Tsim Sha Tsui and 130 bps to 9.6% in Kowloon East.”

Lo expected the overall vacancy rate of Grade A office to hover around its historical average of 5.0% by the end of 2012.

On the rental front, first uptrend was witnessed in 3Q after falling 13% since mid-2011. The overall Grade A office rent edged up by 1.5% quarter-on-quarter (QoQ) in 3Q 2012, with the most strongest growth of 5.4% in Tsim Sha Tsui where the vacancy rate is extremely low at 0.9%.

Following Tsim Sha Tsui, Kowloon East was another submarket seeing well-performing rental growth at 2.8% QoQ. In view of strong demand and tight supply imbalance of large floor size units, landlords in Kowloon East with premises of sizeble floor size raised their asking rents; while the rents of Grade A office units of less than 10,000 sq ft in Kowloon East remained competitive.

In Central/Admiralty, the average Grade A office rent increased by 0.8% QoQ in 3Q. The growth was driven by demand from new set-ups and expansionary demand from the legal sector.

Meanwhile, the investment sentiment softened in the office market, amidst uncertain external environment and tightening of mortgage criteria. The total value of investment sales transactions valued over HK$30 million each in the office market contracted 41% QoQ to HK$6.9 billion in 3Q 2012.

Looking ahead, the sound economic fundamentals in Hong Kong will continue to attract companies from across the globe. In particular, Hong Kong’s excellent location offers advantage for those companies who want to do business in mainland China or across the region. In addition to anticipated increasing demand, scarce new supply is also expected to support rental growth. Over the next 12 months, Colliers International projects the overall Grade A office rent to increase 6%.

Colliers International | Myanmar 11/F, Units 10-12, Sule Square Office Tower, 221 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar​ | Tel: +95 9 314 916 78