This week we focus on the Kowloon office market, where our experts share their insights and outlook. Freddy Wan of Capital Markets & Investment Services sees Cheung Sha Wan’s potential as a thriving business district, and commenting on the recent letting activities in Kowloon, Wang Cheung of Office Services questions whether office rents are bottoming out.
A focus on Cheung Sha Wan
Since the launch of Industrial Revitalisation Scheme 2.0, the Town Planning Board has received 58 industrial redevelopment applications. Among them, 52 were approved equalling a potential total Gross Floor Area (GFA) of around 11.67 million sq. ft. Out of the approved applications, around six of them are located in Cheung Sha Wan.
One of the major stakeholders in Cheung Sha Wan, Fung Properties (HKS) Limited, has also applied for a redevelopment application for their Li Fung Tower at 868-888 Cheung Sha Wan Road. Together with the development of the proposed nearby industrial buildings, the whole project could be redeveloped into either two or three buildings providing GFA of over 1.3 million sq. ft.
In addition, there is an increasing number of big corporates moving to the area. Nan Yang Commercial Bank recently acquired the top three floors of New World’s commercial development on 888 Lai Chi Kok Road for a reported price of HK$1.2 billion, which is a record high for an office transaction in the area. Riding on the convenient location of Cheung Sha Wan and the limited supply in the area, the demand of office space should continue to grow especially after the border reopens.
Is Kowloon office rent bottoming out?
The Kowloon office leasing market was full of excitement in the third quarter. Positive net take-up was recorded in all three major markets – Tsim Sha Tsui (102,000 sq. ft.), Kowloon East (191,000 sq. ft.) and Kowloon West (62,000 sq. ft.). To name a few eye-catching transactions: Prudential committed 49,000 sq. ft. in The Gateway Tower 5, Centaline let 44,000 sq. ft. in Harbour City old blocks, Bupa took 92,000 sq. ft. in The Quayside, and Nike signed 54,000 sq. ft. deal in the International Trade Tower. There was also as additional 15 new letting transactions over 10,000 sq. ft. in different districts in Kowloon.
While these new lettings eased vacancy and rental pressure, it also suggested that office rents are bottoming out. It should also be noted that the nature of these activities follow the trend of consolidation and right sizing which in the long run may result in negative net take-up in the coming quarters.
The positive shoots in the market may see some industries such as IT, e-commerce, consumer goods, and medical & beauty services see organic growth. However, the spaces that they will look to take for expansion would be relatively small. It’s also expected that rental rebound will take place until a consistent positive net take-up is found in the coming quarters for the overall office market.