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21/01/2020 17:17

Decline in HK's grade A office rents accelerates in 4Q 2019

[ET Net News Agency, 21 January 2020] Negative rental growth across all districts was
recorded in 4Q/2019, with overall rents falling by 1.5% QoQ, slightly above the 3Q figure
(-1.0%), according to Savills.
Among all sub-markets, Wanchai/Causeway Bay (-2.5%) recorded the largest rental decline,
followed by Central (-1.7%) and Tsim Sha Tsui (-1.6%). Wanchai/Causeway Bay, with its high
level of amenity (retail, F&B, hospitality, etc.) has become something of a base for
co-working operators but the industry has seen consolidation over recent months, with some
operators looking to surrender space, leading to a rising vacancy in the district.
Since the headquarters of large retail brands are concentrated in decentralised areas
such as Kowloon East and Tsim Sha Tsui, relocation doesn't add up because potential
savings are slim. Many will therefore have to look to downsizing or surrender if they are
serious about cutting overheads.
Hong Kong remains a favorite of multinational corporations that consider the city a
golden gateway to the Chinese market. They will doubtless review their choice with some
regularity in 2020. Singapore is an obvious alternative but longer flight times to China
and high operational costs are still factors that will render any mass corporate migration
unlikely. PRC firms meanwhile are expected to remain committed to Hong Kong given the
active IPO market in the SAR, with little downsizing in evidence to date.
Against the backdrop of social unrest and the US-China trade tensions, Savills expects
office rents to fall across the board in 2020, with core rents falling by 5% to 10% and
non-core Grade A rents down by 10% to 15%.
Sub-markets which have more tourist- and trade-driven tenant profiles, such as Kowloon
East and Tsim Sha Tsui, will see harder falls. Central rents, on the other hand, will see
a milder adjustment since the market expects IPO activity to remain active in 2020.
"We are expecting a subdued 2020 in the local office market with further falls in rents
across all districts despite the very limited new supply this year. If the stock market
and the IPO pipeline remain healthy, rents in Central should be less affected," said Simon
Smith, Senior Director, Research & Consultancy.
"Various prominent tenant demand groups are under pressure right now including
co-working, insurance, retail and hospitality and, given the tendency of similar
industries to cluster in districts, pressure points will emerge in their preferred
business locations," echoed Ricky Lau, Deputy Managing Director & Head of Office Leasing.
(KL)

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