Hong Kong’s office vacancy rate declined for the first time in 10 months in March, and signs for the rest of the year are encouraging amid an uptick in business activity following the border reopening with mainland China, market observers said.
The overall vacancy rate for grade A offices fell 0.2 percentage points month on month in March to 12 per cent – the first decline since May 2022, according to data from a property agency on Monday. The office market recorded a net absorption of 203,900 sq ft in March, the agency said.
Offices in the city’s Kowloon area were the most sought after in the first three months, which mainly helped to bring down the vacancy rate, data from two property agencies showed.
“Inspections and negotiations picked up among multinational, mainland and local companies,” an agent said, adding that deals were “likely to come to fruition in the latter part of the year as it typically takes months for corporates to consider and assess real estate plans”.
“Tenants mainly aimed for quality of the building and upgrades, especially in decentralised submarkets with ample new high-quality supply.”
The outlook for Hong Kong’s office market has brightened since Covid-19 restrictions were dropped and the border with mainland China reopened on February 6. The city’s government has forecast gross domestic product growth of 3.5 per cent to 5.5 per cent for this year as economic activities pick up, which will help to boost private consumption and further reduce the unemployment rate.
“In Kowloon East … the market has started to absorb the large amount of supply which was completed last year,” another agent said.
The biggest rental transaction in the city’s “second central business district” last month was concluded by MUFG Bank. The Japanese bank leased two floors totalling 86,800 sq ft at AIRSIDE in Kai Tak to consolidate its offices in Central and Quarry Bay.
Manulife Financial Centre in Kowloon East also welcomed a new tenant, which rented 30,700 sq ft last month.
On Hong Kong Island, a company leased a 13,300 sq ft office at Great Eagle Centre in Wan Chai.
Such transactions helped to reduce the vacancy rates in Wan Chai and Causeway Bay, the bustling office and shopping areas, to 9.6 per cent from 10.2 per cent in February, while in Kowloon East the available office space fell to 19.3 per cent from 19.7 per cent, the Agency said.
Office rents also fell slightly last month to HK$54.7 (US$6.96) per square feet from HK$54.8 in February.
“Overall net effective rents dropped by 0.2 per cent month on month in March,” an agent said. “Among the major office submarkets, rentals in Wan Chai and Causeway Bay and Kowloon East dropped by 0.4 per cent and 0.3 per cent, respectively.”
The vacancy rates and rents in the city’s main financial district of Central were flat.
In another report released earlier this month, another Agency found the office vacancy rate in Hong Kong had dropped 0.2 percentage points to 15.1 per cent in the first three months of this year from the previous quarter – the first quarterly decline since the fourth quarter of 2018.
Gross leasing volume increased by 40 per cent to 1.1 million sq ft from the previous quarter. Net absorption was 135,900 sq ft between January and March, up for a third consecutive quarter, which the agency said was mainly contributed by Kowloon.
“The opening months of 2023 marked a gradual return to normalcy as cross-border travel with mainland China fully resumed,” another agent said.
The Agency expects integration and collaboration between Hong Kong and China to accelerate in 2023. “Office demand from Chinese enterprises will gradually return to Hong Kong, with firms from this market expected to drive new and expansionary demand.”
