More than a fifth of the respondents polled in Hong Kong said they would downsize their office space in the next two years and relocate elsewhere

Poll respondents cite cost cutting, shrinking business demand and work-from-home policy implementation as the reasons behind their choice

More than a fifth of office tenants in Hong Kong are likely to downsize their space in the next two years with some even looking to relocate to mainland China, Singapore and other parts of the world as they cut costs in a weak economic environment, according to a study released by an international property consultancy on Wednesday.

In a poll of 321 companies, the first since Hong Kong and mainland China scrapped all coronavirus pandemic curbs, 21 per cent or 69 of the respondents said they were likely to trim their operations, citing costs, shrinking business demand and further implementation of work-from-home policy as the top three reasons for their outlook.

“Some occupiers mentioned that their company’s capacity to relocate contributed to their decision,” the study by the property consultancy said. “Among all occupiers planning to downsize, 14 per cent cited relocating capacity to mainland China, 13 per cent to Singapore and 9 per cent to other parts of the world.”

“Businesses are motivated by optimising costs and adapting to changing market demands,” it added.

The poll was conducted from late June to early August and more than half the respondents were Hong Kong-based firms, 18 per cent from Europe and 11 per cent from other Asian cities.

Although 26 per cent of those polled said they would expand their office space and 53 per cent said they were likely to keep their current real estate requirements, the short-term outlook of those planning to leave could pile more pressure on a beleaguered property segment.

“While the majority of the occupiers intend to remain the same in terms of office size, the fact similar proportions of the respondents plan to expand or downsize reflects that the impact of the global economy on business operations and relocation needs vary across industries,” a property consultant said.

The vacancy rate in Hong Kong’s prime office space hit a record high of 15.1 per cent towards the end of August, according to the consultancy, beating the earlier peak of 13.1 per cent struck in September 2003.

Monthly office rental rates have declined 30.3 per cent to HK$54.70 (US$6.98) per square foot from the high struck in January 2019, when office vacancies were at a record low of 3.5 per cent, according to the consultancy.

More supply is scheduled to come on stream with about 3 million sq ft of new office space expected in the second half of the year, the consultancy said in a previous report.

Among the sectors, those in manufacturing, sourcing and trading, and shipping and logistics were the most pessimistic with about a third saying they were likely to reduce their office footprint.

Notably, the split in the real estate and construction sector between companies that said they would expand or reduce their office space was equal at 28 per cent, the study showed.

On the other hand, companies in the IT, banking, finance and insurance sectors were the most optimistic. About 56 per cent of those polled in the IT sector and 35 per cent in the banking, finance and insurance sectors said they were likely to add more office space.

“Respondents identified Hong Kong’s economic outlook (43 per cent) and a potential global recession (34 per cent) as the most important factors likely to impact their business over the next three years,” the study said. “Despite Hong Kong’s slower-than-expected recovery in the first half of 2023, business confidence is improving, with most respondents, especially those in banking and finance and professional services, optimistic about their business outlook over the three years, while 37 per cent of them believe their business will not change.”

The study recommended more flexibility from landlords such as shorter lease periods to adapt to the changing needs of their tenants.

“Supplementary incentives could include rent-free periods and contributions towards fit-out costs,” the consultancy said.