The current oversupply – expected to reach 3 million square feet (278,710 square metres) in the coming months – would take between seven and 10 years to digest
The Hong Kong government’s 12-month halt on the sale of commercial land will have limited effect in easing the supply glut in the city’s offices, as the moratorium does too little too late to slow the biggest onslaught of newly completed space in 17 years, according to several consultants.
“Taking into account the high vacancy rate of office buildings in recent years and the sufficient supply in the next few years, the budget proposes not to put commercial land for sale next year to allow the market room to absorb the existing supply,” Financial Secretary Paul Chan Mo-po said today. He added that the government may designate some commercial sites for other uses, and provide more flexibility in how the land will be used.
That would not do much, because the current oversupply – expected to reach 3 million square feet (278,710 square metres) in the coming months – would take between seven and 10 years to fully digest, a surveyor said.
“Boosting the demand [for commercial space] is also important, including government support to attract more enterprises” to invest and open offices in Hong Kong, the surveyor said.
Hong Kong’s commercial occupancy data paints a grim picture: the vacancy rate in grade A offices crept up to 13.3 per cent in January, from 13.2 per cent in December, according to a property agency. Correspondingly, the rental charges have fallen by 0.2 per cent in January, with the full-year decline expected at between 5 per cent and 10 per cent, the agency said,
Rents may decline further to the level last seen in 2012, which improves the price competitiveness of one of the world’s costliest cities. Still, a drastic fall in rental income could erode the value of commercial properties owned by the city’s biggest landlords and force weaker owners to sell their assets at deep discounts, according to S&P Global Ratings.
“The plans for the housing and land sector are somewhat disappointing”, said Morningstar’s director of Asia equity research Lorraine Tan. “The curtailment of commercial site land sales was also probably expected and not expected to have much impact, because responses to land sales were already disappointing in 2024 and since the sites being offered are outside the Central area, will not do much to address the vacancy rates in Central.”
Prime office rents slumped 62 per cent from a peak in October 2018, according to government data, as occupancy was slammed by the anti-government protests, the Covid-19 pandemic and the recession that followed the double-whammy blows. The rent in nine of the city’s commercial districts including Sheung Wan, Central, Wan Chai-Causeway Bay and Tsim Sha Tsui fell to a range of HK$309 to HK$914 per square metre, approaching levels last seen 13 years ago.
“We see decreased demand for traditional office buildings amid weak market sentiment”, another surveyor said. “The vacancy rates of offices in Admiralty and Wan Chai-Causeway Bay are around 7.4 per cent and 6.7 per cent.”
Several new buildings are preparing to open their doors to tenants in the coming months. Sun Hung Kai Properties’ International Gateway Centre in West Kowloon will contribute 2.6 million sq ft.
“In 2025, the Hong Kong office market is expected to face a high vacancy rate due to the delivery of new development,” another property agency said in a recent report. “We believe the pace of market recovery will depend on various factors, including economic conditions and government policies.”
Hong Kong’s government, which relies on land sales for a substantial part of its fiscal revenue, had already tightened the screws, refraining from putting up any plots for tender even though two commercial sites were earmarked for sale in the 2024/2025 programme. Revenue from land premium and stamp duties dropped to HK$19 billion in 2023 but rebounded to HK$49 billion last year.
The government will delay the in situ land exchange arrangements for commercial sites at Hung Shui Kiu, an area in the Northern Metropolis earmarked for a modern service centre, Chan said.
“It is welcoming [news] that the government is taking the initiative to change the land usage rules to fit the market’s needs”, the surveyor said. “It is worth noting that the government has changed some commercial plots in Kai Tak to residential use. The Lockhart Road commercial plot in Wan Chai should be changed.”
“[It is the] right policy as there is lot of office supply and high vacancy rate, which will help reduce medium supply in office segment,” said Raymond Cheng, managing director at CGS International Securities in Hong Kong, adding that the effectiveness of the new measure still depends on the health of the Hong Kong economy.
The reason the government would only freeze commercial land sales for 12 months could be to allow flexibility to resume sales to meet the demand of business newcomers, as the city is trying to attract more companies to establish footprints here, Cheng said. “Land sales can be very lucrative if the market recovers,” he said.
In his budget speech, Chan said the Financial Services and the Treasury Bureau, together with the Office for Attracting Strategic Enterprises and the Hong Kong Trade and Development Council, would host the inaugural Hong Kong Global Financial and Industry Summit this year. The event would bring together global enterprises, funds and technologies for financial empowerment, thereby elevating the level of international cooperation, he said.
“It will also attract more leading companies in advanced industries, domestic as well as overseas enterprises, and investors to establish a foothold in Hong Kong,” Chan said.
