Decentralisation, flight-to-quality trends persist in Hong Kong

Co-working spaces are also seeing increased demand.

According to a Knight Frank report, the market sentiment in Hong Kong improved, with more enquiries and activity as the local economy gradually returned to normal. 

However, the report said a rebound in rents remains to be seen. In April, the overall net effective rents on Hong Kong Island fell to HK$68.2 per sq ft, for a 0.3% MoM and 1.9% year-to-date decline. 

Here’s more from Knight Frank:

Overall rents in Central dropped 1% MoM, but some decentralised markets were relatively resilient. Rents in Sheung Wan and North Point/Quarry Bay edged up 0.3% and 0.2% MoM, respectively. 

Similar to previous months, there was a continuing decentralisation trend during the month, and the flight-to-quality trend persisted, as tenants continued to look for premium Grade A buildings at attractive rental levels. For example, a beverage company will relocate from Exchange Tower in Kowloon Bay to Two Pacific Place with a 16,000 sq ft lease. 

There was also rising demand for co-working space, as more occupiers remained cautious and actively explored flexible leasing options. Robust demand for co-working space is expected to continue in the short term.

KOWLOON 

In April, market activity continued to improve, with a total of 150 new letting transactions recorded, driven mainly by small and medium-sized deals of 3,000 sq ft or below at an average rent of about HK$25 per sq ft. Most of the leasing activity was in Kowloon East, with electronics and engineering companies the major demand drivers. 

Renewal cases supported the leasing market in April, with the average rent ranging from HK$20 to HK$25 per sq ft. One notable example was Target Sourcing, which renewed its 41,408- sq-ft space at One Harbourfront APEX in Hung Hom for HK$42.5 per sq ft. 

Looking ahead, we expect activity and rents to remain stable in Kowloon. As there are some sizeable negotiations taking place in new office buildings, mainly with the banking and finance, professional service, and sourcing sectors, we are optimistic about the market outlook in the coming months.