HONG KONG, 07 April 2015 – Leasing activity in Hong Kong’s Grade A office market continued to steadily gather momentum in the first quarter, according to JLL Hong Kong’s latest research figures.
Net take-up in the overall market amounted to 369,000 square feet, offsetting the 75,000 square feet of net withdrawals recorded in the previous quarter. Supported by a pick-up in leasing activity and the realisation of pre-sales, Kowloon East recorded the strongest growth amongst the five key office submarkets with net take-up amounting to 206,000 square feet for the quarter. The biggest improvement in the market, however, was seen in Central where net take-up reached 133,000 square feet—the strongest growth in a quarter since 2012—compared with a negative take-up of 35,000 square feet in the previous quarter.
Growth was broad based. Demand in Central was led by a more stabilised banking sector and the steady growth of financial services companies, especially those from the PRC. Insurance companies were also active in the market with expansion requirements. Prudential and AXA expanded their operations during the quarter, while others were still actively looking for space at the end of the March.
The overall vacancy rate tightened 0.1 percentage points to 4.1 percent in the first quarter. Led by the pickup in demand, vacancy in Central dropped from 3.7 percent to 3.2 percent, its lowest level in over three years. Outside of Central vacancy remained extremely tight with vacancy in Hong Kong East and Tsimshatsui dipping below 1 percent. With vacancy tightening, rents trended higher across the market; up 0.8 percent for the overall market and 1.3 percent in Central, on a quarter-on-quarter basis. With the mainland Chinese government loosening monetary policy to shore up growth and improving economic data coming out of the US, business confidence appears to be improving.
Ben Dickinson, Head of Markets at JLL Hong Kong, said: “Leasing demand surprised on the upside in the first quarter. The recovery of the Central Grade A office market has not only reduced tenant options in the market but has also concentrated leasing activity into a handful of buildings with availability. Citibank Plaza, which is one of the few buildings in Central that can currently accommodate larger tenant requirements, attracted strong interest during the quarter from companies looking to expand or consolidate their offices in the city. If demand sustains into the second quarter, we could potentially see rents in Central exceed our current full-year forecast of about 5%”.