Office vacancy rate in Hong Kong Central stable at 7.2% in March

Vacancy rates in Admiralty and Wan Chai were at 8.4% and 11.2%, respectively.

A recent Knight Frank report reveals that leasing momentum on Hong Kong Island returned in March amid the stabilising pandemic situation, with the high activity level supported mainly by small transactions of below 6,000 sq ft. 

The top-performing sectors, such as finance and legal, continued to expand their footprint in Central. For instance, investment company Invesco rented 31,000 sq ft in Jardine House and legal firm Kobre & Kim leased another 9,000 sq ft in Champion Tower. 

Here’s more from Knight Frank:

Although several Grade-A office buildings in Central still recorded a double-digit vacancy rate at the end of March, the vacancy rate in overall Central sustained a stable rate of 7.2%, which has outperformed the non-CBD areas, of which Admiralty and Wan Chai had a vacancy rate of 8.4% and 11.2%, respectively. 

Some landlords’ strategies in offering flexible lease terms or providing fit-out options have proven to be attractive to potential tenants, as demand in these buildings, such as Standard Chartered Bank Building and AIA Central, picked up quickly. With the higher demand, these landlords started to firm up their rents. Going forward, given the increasingly stable pandemic situation, we expect to see sustained momentum in the CBD area in the coming months. 

Kowloon

With the gradual return to the office, more tenants resumed their delayed real estate decisions, leading to a rebound in activity levels in March. Most of the transactions were in the manufacturing and sourcing sectors, mainly in the Kowloon East and Yau Tsim Mong districts at an average rent of about HK$22 per sq ft. 

Strong activity in the leasing market was supported mainly by sizable new letting transactions, as tenants took the opportunity to consolidate their various offices and relocate to new buildings at affordable cost. 

For instance, statutory body Mandatory Provident Fund Schemes Authority (MPFA) consolidated its operations in Kowloon Commerce Centre and Millennium City 1 and pre-leased 95,000 sq ft in 98 How Ming Street project at a face rent of HK$23.5 per sq ft. Hong Kong-based phone case company Casetify also carried out a consolidation exercise, moving its offices from Fun Tower and Linkchart Centre to NEO at a face rent of HK$22.5 per sq ft for a 63,000 sq ft space. 

As more businesses are allowed to reopen amid the relaxed social-distancing measures, we expect overall business sentiment to improve and the leasing volume to gradually return to the level before the fifth wave of the pandemic. We expect rents in Kowloon to maintain the bottoming-out trend in the coming quarters, and tick up slightly in the last quarter of the year, therefore the market will experience an overall increase of 1-3% by the end of 2022.