Hong Kong Grade A office rents drop 2.3% in Q3

The Central/Admiralty submarket was the main driver of this decline.

According to a recent Colliers report, Hong Kong’s Grade A office rental market has observed a drop in rents of 2.3% QOQ to HKD54.1 per sq. ft. amidst a high overall vacancy standing at 14.9% in Q3 2023.  Submarkets like Central / Admiralty and Wan Chai / Causeway Bay were subject to the downward trajectory in office rents. 

“We foresee an overall drop of 4% to 5% in Grade A office rent in 2023 as vacancy rate is expected to remain high despite some minor fluctuations throughout the year. In line with our findings from the Occupier Survey 2023, there is a mixed approach in space requirements. We see large-scale banks adopting a more cost-conscious space optimisation strategy, whereas there is a notable increase in demand from the Technology, media and telecom (TMT) and insurance sectors.” said Fiona Ngan, Head of Office Services at Colliers Hong Kong.

Here’s more from Colliers: 

Office rents continued weakening in Q3 2023, with overall Grade A office rent shedding 2.3% QOQ going from HKD55.4 to HKD54.1 psf. 

The Central / Admiralty submarket remains the main weight in this downward trajectory, with its effective rent falling to HKD95.4 psf (-3.2% QOQ). The Wan Chai / Causeway Bay submarket’s rent dropped a further  4.0% QOQ to HKD53.8 psf.

Overall Grade A office vacancies in Q3 stood at 14.9%, continuing the trend of minor fluctuations around the 15% mark since the beginning of the year. 

Submarkets in Kowloon experienced some relief, improving from 17.4% to 16.5% (-0.9 pp QOQ). However, vacancies on Hong Kong Island rose to 13.1% (+0.6 pp QOQ). 

Amid the prevailing bearish outlook, large-scale banks are becoming more cost-conscious and optimising their office footprint to surrender a portion of their existing space by as much as 77,300 sq. ft. 

Bucking the trend are small-to-medium companies in the banking and finance sector. These entities have retained their positive outlook and actively seek expansion opportunities. 

In addition, there is a notable increase in demand from tenants in the TMT and Insurance sectors for flight-to-quality manoeuvres. Submarkets predominantly occupied by these tenants are expected to maintain relatively stable rates.