Kowloon’s two notable office lease renewals in June revealed

These cases provide an indication of market rent levels.

Kowloon saw a significant slowdown in activity amid the prevailing economy uncertainty and the beginning of summer holiday period. Renewal cases dominated the market instead of new lettings. 

In June, the number of new transactions recorded dropped by 38% MoM. Transactions in the Kowloon market were supported mainly by small deals of under 3,000 sq ft, at an average rent of HK$22.8. Both average transaction size and average transaction rent recorded a drop last month. 

While there was a lack of sizeable new letting cases in June, some notable renewal cases that provide an indication of market rent levels were Ralph Lauren‘s renewal of a 37,464- sq-ft space at The Gateway Tower 1 in Tsim Sha Tsui for HK$45.5 per sq ft and Nike’s renewal of its 54,019-sq-ft space at Manulife Place in Kwun Tong for $26.5 per sq ft. 

These two cases are examples of tenants seriously studying a move but as occupancy in new buildings has dropped, rents have climbed, and existing landlords are more willing to compromise on rent and incentives during renewals, relocation decisions are getting more difficult in Kowloon. 

Exceptions are for companies who are in Grade B buildings seeking space in Grade A buildings for an upgrade amid stable rent. In addition to financial incentives, some landlords are willing to provide a capex subsidy, such as flexible leasing packages and fit-outs, to attract tenants. The trend has continued, and this demand source is expected to be one of the key supporters of the market in the next couple of months. 

Domination of renewal and upgrade-driven relocation cases implies signs of stability, so we expect activity levels and rents in the Kowloon office market to remain relatively stable in 2H 2024.