Shocking Decline in Hong Kong's Office Market

In a surprising twist for the Hong Kong property market, Grade A office rents have fallen to HK$62.6 per square foot. This reflects a significant decline of 6.5% year-on-year (YoY) and a 3% drop year-to-date (YTD), according to recent research by Knight Frank.

District-Specific Declines

The downturn is particularly pronounced in key districts, with Central, Admiralty, and North Point witnessing greater declines of -5.8%, -6.0%, and an alarming -9.7% YTD, respectively. Despite these challenges, the overall vacancy rate for Grade A offices remains stable at 13.4%.

Sector-Specific Trends

The local legal sector, especially firms focused on conveyancing, initial public offerings (IPOs), and securities markets, has reportedly reduced their operations, struggling to adapt in this tough economic climate. However, amidst this reluctance, an unexpected surge is noted among new hedge funds—a sector showing resilience and driving demand for smaller office spaces of under 5,000 sq ft.

Recent Developments

In an interesting development, a local hedge fund recently secured the entire 9th floor of LHT Tower, encompassing approximately 5,700 sq ft, revealing a flicker of hope in the beleaguered market. Experts believe this growing interest from hedge funds could spark increased leasing activities in the upcoming months.

Forecast for 2024

Looking ahead, Knight Frank maintains its conservative forecast, predicting an additional 3% to 5% drop in rents for 2024. Meanwhile, Kowloon has not escaped the trend, with a notable 13% month-on-month (MoM) decrease in leasing transactions in August, attributed largely to the seasonal summer holiday slowdown.

Signs of Renewal

Despite this lull, there are signs of renewed leasing activity on the horizon. September and October may bring increased engagement as HKU Space has recently leased a substantial 23,593 sq ft office in Kingston International Centre, Kowloon Bay.

Looking Ahead in Kowloon

Looking to the future, the Kowloon market is anticipated to experience a marginal decline in rents as tenants are becoming more cautious amid a dimming economic outlook. Specifically, rents in Kowloon East could see a fall of 3% to 5% as ICBC relocates from Kwun Tong, further shaping the landscape of office leasing in the region.

Conclusion

As these shifts unfold, investors and stakeholders are left to ponder: what will it take for the Hong Kong office market to rebound? Stay tuned for more updates!