Oversupply brings Hong Kong’s office vacancy rate to a record 14.7% in 2022

There was over 4 million sq ft of new Grade A space in the market.

As Hong Kong’s economy was recovering from Covid’s 5th wave, Colliers says the uncertainty regarding the full reopening of the mainland border hindered its traditional ability to act as a bridge between the mainland and international markets. 

According to a Colliers report, corporates adopted a wait-and-see tactic regarding office expansion, with a priority of optimising their costs. Thus, the leasing market was muted, resulting in a small magnitude of net take up in Q4 2022. Full-year 2022 net absorption was only 353,000 sq. ft. (32,800 sqm); however, this is the first year with positive net absorption since 2019. 

Here’s more from Colliers:

Given the market’s expectation of further interest rate hikes, the positive net take up in H2 2022 shows the market has digested the negative impact of rising interest rates. The gradually recovering demand was overwhelmed by an abundance of supply. In 2022, over 4 million sq. ft. of new Grade A space rushed into the market, and the vacancy rate shot to 14.7%.

In 2022, overall Grade A office rents dropped by 4.5% YOY. Rents in Kowloon’s submarkets were more stable, for example, Kowloon East was the only major business district recording positive rental growth in 2022. 

At the same time, Hong Kong Island’s premier business district, Central, saw the least rental correction, retreating by only 1.9%. On top of that, the prime Grade A office segment, or so-called Grade A1 office, recorded a mild rental decrease of 0.8%. 

We believe tenants are looking to improve their office quality or location to position themselves to capitalise on the post-Covid recovery. For example, in Q4 2022, UBS committed to 250,000 sq. ft. of office space in the XRL Terminus project, which is scheduled to be completed by end of 2025.