(22 March 2017, Hong Kong) Office leasing activity in February was largely driven by cost-saving relocation requirements, according to research in JLL’s latest Monthly Market Monitor released today.
The lack of availability in Central and a widening rental gap against the city’s other key office submarkets continued to drive leasing demand into non-core business districts, culminating in net take-up amounting to 60,200 sq ft last month.
Leasing demand in Central was relatively subdued. A handful of tenants sought cost-effective options in the submarket’s fringe areas, including Sheung Wan, where rents trade at up to a 50% discount to buildings in core Central.
Rents in Hong Kong Island remained relatively stable against a tight vacancy environment. Vacancy in Central’s Grade A office stayed at 1.5% at the end of February. Led by growth in the Grade A2 market, Central rents continued to trend higher, albeit at a slower pace, up 0.2% m-o-m to HKD 114 per sq ft in February.
In contrast, rents in Kowloon East retreated by 1% m-o-m in February as vacancy in the submarket remained above 10%. The lack of leasing momentum in newly completed and upcoming Grade A office buildings continued to put pressure on rents.
Alex Barnes, Head of HK Markets at JLL, said: “Aside from PRC activity in Central, the majority of demand is cost driven relocation. Despite Central rents ranking highest in the world, there are still districts nearby, including Hong Kong East and Wong Chuk Hang, that deliver a 60-75% rent discount. Activity across new developments has up ticked significantly since Chinese New Year. We expect a number of larger transactions to start to filter into market statistics in the second half of the year, as new supply completes.”
Denis Ma, Head of Research at JLL, said: “The government land sales market continues to deliver positive signals for the long-term outlook of the city’s office market, especially in emerging commercial nodes. The latest result, for the business development site in Cheung Sha Wan, shows that developers remain confident that transformation of the city’s former industrial areas will translate into stronger demand for high quality office space.”
|Grade-A Office Vacancy Rates|
|Hong Kong East||Tsimshatsui||Kowloon East|
Source: Research, JLL