Office rents on Hong Kong Island slip 0.4% in March

Rents in decentralised submarkets were more resilient.

According to a Knight Frank report, the Hong Kong Island market continued its downward rental trajectory, with overall net effective rents falling to HK$68.7 per sq ft, for a decrease of 0.4% MoM and 1.7% YTD. 

Differentiation in submarket rental performance was observed in the first quarter. 

Here’s more from Knight Frank:

The Central/Admiralty area experienced rental declines of 2.3% YTD, while those of decentralised submarkets were relatively resilient, with rents in Wanchai/Causeway Bay falling 0.5% YTD and those in North Point/Quarry Bay falling 1.1% YTD. 

Occupiers took advantage of the falling rents to expand, with several notable transactions. Chinese securities firm Huatai Financial Holdings will occupy another entire floor of approximately 27,000 sq ft at The Center. The company currently occupies four floors in the building. 

Demand from co-working operators also remained strong, with several expansion cases in the major submarkets in March. For instance, one operator leased two floors totalling 18,900 sq ft in the China Building and another operator leased approximately 20,000 sq ft at K11 Atelier King’s Road. Robust leasing demand from co-working operators is expected to continue in the short term. 

Kowloon

Leasing activity continued its stabilising trend in March. Average transacted rents were broadly stable at HK$25.2 per sq ft, with an average take-up size of 4,500 sq ft. Leasing movements remained active in Kowloon East, with engineering and electronic companies the major demand drivers. 

Renewal cases dominated the leasing market in March, with most leases renewed for one to two years. Occupiers are refining their long-term post-COVID real estate strategies and holding a cautious approach towards the expenses for relocation, hence they tend to renew their leases for a short period of time.

A few large-scale new letting transactions were observed during the month. Japanese bank MUFJ will take up two floors at AIRSIDE with a total area of 86,800 sq ft in an office consolidation. A government office will occupy a floor totalling 20,600 sq ft in Millennium City 1. Space optimization will continue to be one of the key factors that drive leasing demand in the Kowloon market. Overall, we expect positive rental growth in 2023 amid further improving market sentiment.