Hong Kong overall office rents to rise by up to 5% by end-2023

Though submarkets are still expected to endure some rental pressure.

In a report, JLL says it expects occupier demand in Hong Kong to recover somewhat as corporates configure business plans and formulate their real estate requirements accordingly. More leasing activities are expected to come to fruition in the second half.

“The vacancy rate is likely to edge higher with 3.0 million sq ft of new office supply expected this year. While overall office rents are forecasted to rise 0%-5% in 2023, the emergence of new supply will likely keep some submarkets under rental pressure,” the firm adds. 

Here’s more from JLL: 

Tenants aim for quality and upgrades

Net absorption in the overall market amounted to 204,000 sq ft in 1Q23, mainly due to the commitment of some sizable spaces in Wanchai. Driven by the loosened pandemic measures since February, inspection activity has picked up notably. Tenants targeted building quality and upgrades, especially in decentralised submarkets with ample new high-quality supply. 

Among a handful of new lettings, professional service company Deloitte leased two floors (38,800 sq ft, GFA) at The Millennity in Kwun Tong, to consolidate a part of their office space at Admiralty. In addition, MUFG bank leased two floors (86,800 sq ft, GFA) at AIRSIDE in Kai Tak to consolidate its office in Central and Quarry Bay.

One project completes in 1Q23

One project in Wong Chuk Hang, S22, was completed during the quarter, adding 116,300 sq ft to Grade A office stock.

The overall vacancy rate dropped slightly to 12.0% as of end-March 2023, from 12.1% in the previous quarter. The vacancy rate in Central rose marginally to 9.0% while Wanchai / Causeway Bay’s vacancy rate dropped to 9.6% from 10.2%. Tsimshatsui’s vacancy remained flat.

Moderate rental declines across submarkets

Rents in the overall market dropped 1.1% q-o-q as major submarkets recorded marginal declines. Notably, rents in Central and Wanchai / Causeway Bay dropped 1.0% and 1.8% respectively.

Capital values in the overall market dropped by 1.4% q-o-q in 1Q23, while investment yields expanded marginally.

Note: Hong Kong Office refers to Hong Kong's overall Grade A office market.