Hong Kong office rents to drop by up to 10% more over the next year

This is after rents have fallen by 11.9% over the first three quarters of 2020.

The city’s Grade A office vacancy rate rose to 6.8% at the end of September 2020, from 4.7% at the end of 2019. According to Savills, the surging vacancy rate during the period was attributed mainly to worldwide economic recession, which has inevitably resulted in corporate downsizing and the surrender of office space.

Decentralisation continues to prevail with more Central-based financial and business services firms moving to other districts (e.g. Wan Chai/Causeway and One Island East). Most businesses have resumed normal working patterns but some multinationals are still allowing staff to work from home.

Here’s more from Savills:

Retail and hospitality have been greatly impacted by the pandemic, together with finance and business services. This is reflected in the rising vacancy rate in the CBD.

Medical and online businesses are examples of sectors that have been relatively less affected. In order to attract tenants, landlords are currently offering longer rent-free periods as an incentive, rather than shortening the lease term to less than the typical term of three years.

Developers and investors are more cautious when considering land acquisitions, and the Development Bureau recently delayed the tender of New Central Harbourfront Commercial Site 3.

We expect rents to fall by a further 7.5-10% in a year’s time, after rents have fallen by 11.9% over the first three quarters of 2020. The vacancy rate is expected to continue rising given sluggish leasing activity and 1.4 million sq ft of new supply due to complete in 2021.

What advice would Savills give a 30,000 sq ft CBD occupier with a lease event in 12 months’ time?
The occupier should start the planning process (e.g. solicit and consider options) now since many 30,000 sq ft CBD occupiers start their search for available options one year before expiry. Typically, it requires six to nine months for the entire renewal/relocation decision.