Weak demand, increased availability led to the first drop in overall office rents in five years
Office absorption in Q2 supported by MNC cost-saving relocations and a significant amount of pre-leases in new completions
Decreasing retail sales dented the rental growth in core retail areas, despite a general increase in tourist arrivals in the first five months of 2019 Outlook of both office and retail leasing markets in H2 clouded by economic and geopolitical headwinds.
HONG KONG, RIAUONE.com – 11 July 2019 – Global uncertainties and a drop in Wanchai/Causeway Bay and Prime Central rentals due to weak demand contributed to the territory-wide average office rent retreating for the first time in five years.
Nonetheless, overall absorption rebounded from the negative territory in Q1 to 498,134 sq ft in Q2, supported by MNC cost-saving relocations from core areas and a significant pre-leasing in new completions, although net absorption in Greater Central and Wanchai/Causeway Bay were down.
Meanwhile, record-high growth in visitor arrivals did not lead to corresponding growth in retail sales. Most of the core retail rents recorded smaller quarterly growth than that in Q1, and Central rents continued to drop, as noted by Cushman & Wakefield, a leading global real estate services firm.
The rebound in net absorption in the overall Grade A office market was largely due to the conversion of strong pre-leasing over the past couple of years in new completions (a total of 410,700 sq ft) in Hong Kong East and Kowloon East; whereas weakened occupier demand, plus some cases of MNC decentralization and downsizing, have led to a negative absorption in Greater Central (-182,352 sq ft) and in Wanchai/Causeway Bay (-90,795 sq ft).
Mr John Siu, Cushman & Wakefield's Managing Director, Hong Kong, commented, “Weakened demand from PRC firms in core areas, plus MNCs becoming more cost-conscious as trade tensions remain unresolved, have led to a steady decline in overall absorption over the past year, from 1.05 million sq ft in H1 2018, to 868,100 sq ft in H2 2018, and to 479,325 sq ft in H1 2019.”
Prime Central and Wanchai/Causeway Bay rentals began to soften in Q1, and the drop in Q2 has deepened to 1.2% and 2.0% q-o-q, respectively.
Rents in Greater Central and Kowloon East also saw a mild dip of 0.7% and 0.4% q-o-q, respectively. Growth in the other submarkets was led by Hong Kong East (up 1.4% q-o-q), but the territory-wide average rent still edged down for the first time in five years by 0.4% q-o-q. Mr Siu continued, “Comparing the rental trend with the change in availability, Hong Kong East has the tightest availability (3.9% when excluding the recent new completion) and quality office space that is support rental growth there.
In Greater Central and Wanchai/Causeway Bay, although availability went up by at least one percentage point from their respective Q1 figures, it is still considered to be at a sustainable level (below 10%).
The fact that 2020 will see no new supply in any submarket will lend support to Central's rentals, however the outlook for H2 2019 is clouded by economic and geopolitical uncertainties, as occupiers await a clearer picture before expansion plans can be resumed.” (roc/red/*) #for information on collaboration publications, questions and other e-mails email@example.com