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Weekly Snippet | Hong Kong office market displaying signs of improvement

Hong Kong Research FlashOffice 1536x1040

While a number of multinational companies, especially those in the banking sector have downsized their office footprints, we have observed that other companies have taken advantage of attractive rental packages and increased availability to relocate to more prestigious locations. Read on as Dorothy Gao of Office Services and Rosaline Fu of Valuation & Advisory Services share their on-the-ground observations for office leasing and commercial property investment respectively.

Leasing sentiment turning more upbeat

In the past quarter, we have seen an increase in new letting transactions in Central. This has seen a trend of tenants moving within the same district in search of either an upgrade, expansion, or consolidation. For example, AGI and Susquehanna confirmed they will relocate to a whole floor in Two Pacific Place, and AIA Central respectively. For high-vacancy landlords, there could be a need to further review rental strategies to focus on retaining current tenants. The office leasing market has become very competitive with landlords offering attractive packages to stimulate movement to new offices, buildings, and even districts. 

Increased investment sentiment in commercial office space 

Despite the overall negative net take-up being recorded at -459,400 sq. ft. as of Q1 2021, office leasing sentiment has slightly picked up. Overall Grade A office rents dropped by 2.0% QOQ in Q1 2021, the lowest drop over the past three quarters which demonstrated the pace of rental correction has moderated. There have also been more enquiries and inspections witnessed across different districts, particularly around the CBD area. 

For occupiers, relocation and downsizing have been drivers behind the reactivation of the office leasing market since the last quarter. Some CBD district leasing activities, such as S&P Global moving into Three Exchange Square, bucked the office decentralisation trend. The decline in rental levels of CBD office buildings has triggered more occupiers to negotiate and enter the CBD with more favourable rents and flexible lease terms. 

The high volume of activity in the office leasing market has reinstated investors' confidence in the sector. The government’s implementation of the pilot scheme for charging premiums at standard rates will continue to build momentum in the market, potentially contributing to a gradual recovery of the sector. With the proactive government incentive, office market investors are expected to adopt and formulate a new investment approach. Occupiers will likely take advantage of such active investment activities to seek better tenancy opportunities.