Hong Kong’s beleaguered Grade A office market continued to face rising vacancies and falling rents in August, although the emptying out of Central and other core districts of the city showed signs of slowing, according to a report released earlier this month.
Tenants occupied 147,500 square feet (13,703 square metres) less of grade A office space by the end of August than they had at the close of the previous month, according to the latest Property Market Monitor report released by JLL.
August marked the 13th straight month of tenant retreat from the city’s famously pricey corporate accommodations, with landlords reacting by lowering rents in the face of climbing vacancy. Although JLL sees signs that the lower prices may be luring some occupiers back into the market to hunt for bargains.
“More businesses are actively in the market looking at their real estate needs in the second half of the year, albeit cost saving remains a key consideration, said Alex Barnes, head of markets at JLL in Hong Kong.
“The reduction in rent has encouraged some isolated upgrading activity in Central, and is likely to continue to do so towards the end of 2020 and in 2021.”
Central Keeps Sliding
The biggest rental drop across Hong Kong’s core commercial districts during August was recorded in Central, where rates for offices fell by 2.5 percent compared to the previous month, according to JLL’s figures.
That decline in rents in Central may have helped pave the way for a pair of New York-based law firms to upgrade their premises in the district during August, with sources confirming to Mingtiandi that Sullivan & Cromwell signed up to shift from 9 Queen’s Road Central to new offices at Hongkong Land’s Alexandra House.
Fellow NYC firm Paul, Weiss also opted for an office in a Hongkong Land property, signing a deal to move from the Hong Kong Club Tower to The Landmark’s Gloucester Tower,
Those moves, however, did not stop Hong Kong’s priciest office district from reaching its highest vacancy rate since 2005, with 6.0 percent of Central office space now yearning for a well-heeled tenant in need of a showy address. That figure was up from the 5.7 percent level reached a month earlier.
Much of that vacancy comes from cash-strapped tenants surrendering leases or parts of their premises in the Greater Central area, where rents averaged HK$115.7 ($15) per square foot per month during the second quarter of this year, according to data from Cushman & Wakefield.
Surrender space in the submarket continued to increase, amounting to about 520,000 square feet of net floor area and breaching the 500,000 square foot mark for the first time since October 2002. That amount of surrender space is now equal to 2.2 percent of the Grade A office stock in Central, according to JLL.