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Colliers International Hong Kong releases Annual Occupier Survey 2019

Prolonged US-China trade tension and slowing global economy leaving more firms to opt for a wait-and-see approach. 41% of the respondents are considering relocation upon next lease expiry, with Kowloon East and Island East remaining popular options. Greater Bay Area (GBA) Initiative should drive net office expansion demand in Hong Kong, with 20% of the occupiers planning to increase the size of local operations. Flex-and-Core model rising in popularity, driving demand for flexible workspace and additional amenities for boosting staff wellness and productivity.

Hong Kong, 4 July 2019 Colliers International (NASDAQ: CIGI; TSX: CIGI), a global leader in commercial real estate services, released the Hong Kong Annual Occupier Survey Report 2019. The report seeks to provide a comprehensive picture of current and future Hong Kong office market trends through surveys with 363 occupiers from various industries spanning finance and insurance, sourcing and logistics, retail and wholesale, and Technology, Media and Telecoms (TMT).

 “Conducted in a period during the most recent shifts in occupier sentiment caused by escalating international trade tension and local political tension, this year’s survey showed a slight drop in occupiers’ confidence about their business outlook over the next 12 months. Despite the near-term market turbulence, occupiers are still confident on the long-term view of the Hong Kong office market, with 41% of occupiers plan to expand over the next three years, driven by the emerging innovative technology sector and opportunities arising from the GBA Initiative.”  – Rosanna Tang, Head of Research, Hong Kong and Southern China, Colliers International.

“One notable finding was that a significant proportion of occupiers are considering relocation upon lease expiry, with Island East and Kowloon East remaining the most popular among all relocation options. Meanwhile, we also noticed that some occupiers prefer to stay in core locations despite the high rents. With changing operational strategy for occupiers, landlords should look at providing better tenant services such as building amenities and new working experience to attract anchor tenants.”  – Fiona Ngan, Head of Office Services, Colliers International Hong Kong.

A Positive-but-Cautious Business Outlook for the Hong Kong Office Market

Occupiers have shown concern against the backdrop of a slowing global economy and US-China trade tension, with 9% of respondents feeling uncertain about their business outlook over the next 12 months. However, 41% of occupiers still plan to expand their businesses over the next three years. Among them, Banking and Finance (21%) and TMT (20%) sectors show the most positive intentions, which echoes Colliers’ view that the innovative technology sector is an emerging driver of future office demand.

The occupiers consider “a slower global economic forecast” (35%) and “US-China trade war” (32%) as the factors most likely to impact their business outlook over the next three years. While “a slower economy” is the common critical factor across most  industries, shipping and trading, banking and finance, and retail and wholesale industries are most worried about the “US-China trade war”. Occupiers from the real estate and construction industries cite “The Greater Bay Area Initiative” (20%) as making the biggest impact on their business outlook.

Similarly, landlords remain cautiously optimistic about their business outlook and office demand, with some expecting the US-China trade war to remain on the radar for the next 12 to 18 months. Rental impact has yet to emerge for most portfolio landlords, though they are aware that requests for rental increases in lower-rent submarkets like Kowloon East are likely to encounter resistance.

Over 40% of Occupiers Considering Relocation

Around 41% of respondents plan to relocate from their current offices upon lease expiry. With average rents on Hong Kong Island increasing by 14.3% over the last three years, survey results indicated that occupiers on Hong Kong Island are more inclined to relocate, compared to those in Kowloon and the New Territories where rents are more affordable.

While over half of the occupiers planning to relocate prefer same district relocation, especially for those currently in core and fringe CBD districts (Central, Admiralty, Sheung Wan, Wan Chai and Causeway Bay), Kowloon East and Island East are emerging as the most popular locations to occupiers from other submarkets.

GBA Initiative Driving Organic Office Expansion Demand

The GBA initiative is set to foster the region as a global centre for financial services, trade, logistics and leisure. Integration of talent, and increased capital and business ‘flows’ across the GBA cities, should drive office space demand in the future. Under the initiative, one-fifth (20%) of the occupiers indicated that they have plans to increase the size of the local operations in Hong Kong, while the other 14% said they will likely expand business in other GBA cities.

Among those who plan to “expand the location operation size” in Hong Kong, Banking and Finance (23%) and TMT (18%) are the top two sectors, while over half of the occupiers come from core and fringe CBD (Central 30%; Fringe 22%). We expect these areas to see some organic growth in office demand in the future.

Office Amenities as Leasing Incentives

Flexible working culture including Activity-Based Working is trending amongst occupiers, and flexible workspace is also in demand due to the increasing popularity of the Flex-and-Core model (combining flexible workspace with conventional office space) which provides companies greater flexibility for changes with a shorter lease cycle.

Amid rising awareness of employee experience, Colliers expects to see occupiers allocate more resources to boosting workplace wellness to attract talent and improve productivity. Landlords should look at offering the most sought-after amenities in their new developments, including meeting rooms or event venues (21.4%), gym rooms or cafes (20.7%), green building facilities (18.3%), and flexible workspace (14.4%) to incentivize and attract anchor tenants.

To learn more about the current state of the Hong Kong office market, download the full Hong Kong Annual Occupier Survey Report 2019 from Colliers International here.

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