_Hong Kong - Office rents remain polarised in core and decentralised areas

The Grade-A office leasing market remained subdued on Hong Kong Island, as leasing activity was limited by the lack of availability. As a result, rents continued to increase in most Hong Kong Island districts amid the low vacancy rates. Expansion demand was weak.

January 09, 2017

On Kowloon side, leasing activity also slowed in September, with fewer transactions than in August. The key demand driver remained tenants relocating from Hong Kong Island for expansion or consolidation, attracted by the availability of large space at a lower cost. Given the abundant supply, landlords offered deep rental discounts or other incentives to attract and retain tenants. This means options will become more attractive to tenants and we expect leasing transaction numbers to rebound in the last quarter of the year.

The office sales market remained hot with another en-bloc transaction recorded. Henderson Land agreed to sell its Golden Centre office building in Sheung Wan for HK$4.4 billion, which represents a unit price of approximately HK$28,000 per sq ft. The optimistic sentiment also spread to the strata-title market. For example, three mid floors in Convention Plaza Office Tower in Wan Chai were sold for a total consideration of HK$1.39 billion.

Looking ahead, we expect the rental polarisation to continue. Given the tight availability, Grade-A office rents in core areas are expected to further increase in the coming months. However, decentralised areas, particularly Kowloon East, are likely to face rental pressure with more supply coming online.