According to global real estate consultant JLL, Grade A rents in Hong Kong's office market grew by 1.5% quarter-over-quarter in Q1 of 2016, led by rising rents in the Central District, which grew 2.5% on the quarter-- one of the only two submarkets (the other one was Tsimshatsui) to see growth accelerate over the previous quarter.
Office leasing activity outside of Central remained subdued, reflecting the tight vacancy environment and the Chinese New Year holidays. Still the market continued to record steady growth from the banking and finance and insurance sectors with PRC corporates continuing to set rental benchmarks. In one of the largest leasing transactions in Central during the quarter, the Hong Kong Stock Exchange leased four floors at One Exchange Square to facilitate the consolidation of their offices.
The realization of pre-committed leasing space at the West Tower of One Harbour Gate in Hunghom contributed to the net take-up for the overall market to reach 278,400 sq. ft. in 1Q16.
PRC corporates also continued to show strong interest in the office investment market. Following on the heels of purchases made by Evergrande Group and China Life at the end of last year, China Everbright acquired Dah Sing Financial Centre in Wanchai for HKD 10 billion (HKD 24,993 per sq. ft.). PRC buyers have now been involved in three of the four largest en-bloc office building transactions on record.
Alex Barnes, Head of Hong Kong Markets at JLL tells World Property Journal, "Given that developers continue to capitalize on the recovery of office rentals in core areas where the overall vacancy is extremely low, we expect rents of overall Grade A offices to climb towards 5% in 2016, with sustained demand coming from PRC companies seeking office space in landmark buildings."
Hong Kong's Retail Sector Still Facing Economic Challenges
In the retail property market, leasing activity was largely dominated by lease renewals as more street shop landlords cratered to retailer demands in rental negotiations. F&B, services industry, lifestyle retailers and retailers focus on local consumers continued to be the most active players in the leasing market though some jewelry and fashion retailers have more recently expressed a desire to terminate leases early in the wake of flagging retail sales.
Rents of high street shops dropped 4.2% quarter-over-quarter in 1Q16, compared with a fall of 5.1% quarter-over-quarter in 4Q15. Though rents of prime shopping centers edged up 0.1% quarter-over-quarter, performance amongst individual centers continued to be mixed with some landlords turning more accommodative.
Terence Chan, Head of Retail at JLL Hong Kong also commented, "Mid-priced overseas retailers are still very much interested in expanding in Hong Kong. However, they are looking for the shops in shopping centers. High street shop rents are still under downward pressure, particularly in Causeway Bay where vacancy on prime shopping strips such as Yun Ping Road remains stubbornly high. But with landlords now more willing to meet retailer demands in lease negotiations, we may see vacancy and retail rents stabilize in the coming months. Still, we expect high street shop rents to drop 10-15% this year."