According to JLL's latest Property Market Monitor Report released this week, Hong Kong's central region office vacancy rate rises to a three-year high as commercial tenants are now delaying expansion plans amid increasing economic and political uncertainties with Mainland China. Hong Kong's office leasing market recorded negative take-up in July 2019.
The Central occupier market contracted by 56,100 sq. ft in July, pushing the vacancy rate up to a three year high of 2.6%. However, the overall market recorded positive net take-up of 75,900 sq. ft, driven by leasing activity outside of Central.
A number of notable new lettings in Hong Kong East, including Standard Chartered Bank leasing 18,700 sq. ft at Oxford House to accommodate the expansion for their virtual banking arm and recent commitments at K11 Atelier King's Road in North Point contributed to the vacancy rate tightening back down to 2.7%, the lowest among the city's key office submarkets.
Alex Barnes, Head of Markets at JLL in Hong Kong said, "Demand has notably reduced, particularly in Central, as overseas decision makers weigh up increasing global economic woes and the impact to Hong Kong. It will take time to register a lack of traditional demand into a meaningful rental reduction, without a significant spike in vacancy, or major new supply. Businesses feeling the brunt of economic conditions are unlikely to feel a 10-15% reduction in rent is meaningful, against the prospect of finding significantly cheaper alternatives.
Bucking the overall trend is co-working demand, which remains a beacon of hope for landlords carrying vacancy. The bulk requirements from operators means that landlords will likely hold-off on meaningful rental reductions over the short term. As occupiers become more concerned around business planning, it is likely that demand into co-working centres will increase."
"In the office investment market, few properties changed hands during the month as investors digested the heightened uncertainty around the global economic outlook as well as the escalating civil unrest. Still, the drop in sales has had little impact on pricing with vendors continuing to hold firm on asking prices. Notably, a small unit in Admiralty Centre Tower 1 reportedly sold for HKD 200 million (HKD 30,465 per sq. ft), representing a gain of 272% over a 10-year period," said Denis Ma, Head of Research at JLL in Hong Kong.
Latest data on inbound tourism numbers have yet to reflect the full impact of the anti-extradition bill protests on the city's retail market, with total visitor arrivals rising by 8.5% y-o-y in June. Total retail sales fell by 6.7% y-o-y during the same period, continuing the trend of previous months. The market for luxury goods suffered the greatest drop with the sales of jewelry and watches down 17.1% y-o-y.
Ma continued, "Most retails have adopted a 'wait-and-see' attitude towards expansion requirements amid the on-going protests. Among the few notable leasing transactions recorded, a retailer reportedly leased a two-story shop (19,064 sq. ft) at 100QRC in Central for a reported monthly rent of HKD 1.8 million, paying 10% less than the previous tenant."