Global property consultant JLL reported this week Hong Kong's overall Grade A office market was stable in the first half of 2022, despite the city being hit by the fifth wave of the Covid-19 pandemic.
The market recorded net absorption of 1.25 million square feet during the period, on the back of realization of pre-commitment in new supply and improved occupancies in decentralized locations. The overall vacancy rate retreated to 9.4% at the end of June 2022, while the overall office rental level decline moderated further to 0.2% in the first half of the year.
Central is leading the office market recovery, driven by demand for premium office space. The district registered rental growth for the fourth consecutive quarter with rents rising 0.8% in the first half of the year.
The expansion demand mainly came from funds, private banks, flexible office space and healthcare occupiers. Funds and private banks continued to look for headcount growth in the city and upgraded workspace to support the needs of a tight talent market. In addition, there were fewer sectors that downsized their office space.
New demand from Mainland China firms was subdued due to the border control mechanisms that have remained in place for the last two years. However, the share of leasing volume contributed by existing mainland tenants with upgrading and expansion demand has started to pick up since the second half of 2021 and reached 12.1% of the total in the first half of 2022, comparing to about 7.1% in 2021.
Paul Yien, Executive Director of Office Leasing Advisory at JLL in Hong Kong said, "We have witnessed a sign of recovery from the downturn in the office market, and believe the positive net absorption will continue to improve in the second half of the year owing to sustained occupier demand who continue to look for high quality options and upgrade workspace for talents. Although the new office supply will reach a record high of 5.0 million sq. ft this year and will drive the vacancy rate higher, new office buildings will have a competitive advantage in the leasing market and attract leasing interests as more companies are looking to upgrade their workspace. It will be one of the market focuses."
"Central will be the focus of market activities in the remaining part of the year. The submarket's office rents are currently 28.3% lower than the market peak in 2019, which is attractive to tenants who are looking to upgrade and expand. We expect Central to lead the rental growth and climb 0% to 5% this year due to the demand growth of existing occupiers. Overall office rental growth, however, heavily depends on whether the pandemic will remain under control and relaxation on travel restrictions and border control," he added.