APPD Market Report Article
Hong KongMay 31, 2022
Occupier demand sustains amid the fifth wave
- Overall Grade A office net absorption was 979,800 sq ft in 1Q22 as a result of realisation of pre-commitments in new supply and improved occupier demand. Office occupiers continued to look for quality in their office premises. For instance, logistics service provider FedEx leased 40,600 sq ft (GFA) at Landmark East in Kwun Tong to consolidate its offices in Kowloon East.
- Business centre operators expanded in the wake of the pandemic as tenants reconfigured their real estate requirements with wellness amenities and flexibility. Notably, IWG leased the whole of 8 Queen’s Road East (64,800 sq ft, LFA) in Wanchai to launch a new Spaces centre.
Future supply remains concentrated in decentralised districts
- Both 888 Lai Chi Kok Road in Cheung Sha Wan and K11 Atelier 11 Skies in Chek Lap Kok were completed in 1Q22, adding 836,700 sq ft to the Grade A office stock.
- Chinachem Group won a commercial site (TCTL 45) at Area 57 in Tung Chung for HKD 2.778 billion. The accommodation value of HKD 2,202 per sq ft was close to the lower-end of market expectations. As the site can be developed into a mixed-used complex comprising office, retail and data centre, the size of the office portion has not yet been determined.
Rents and capital values stay broadly flat despite disruptions
- Overall market net effective rents remained flat in 1Q22. Driven by demand for premium office space, Central registered rental growth for the third consecutive quarter with rents having risen by 0.7% during the quarter.
- Capital values in the overall market dropped 0.5% q-o-q in 1Q22. Investment yields stayed at 2.8% for the overall market.
Outlook: Recovery is delayed by the pandemic
- The recent virus outbreak disrupts the recovery of the office market. However, the announced roadmap to re-opening should strengthen market sentiment. Corporate real estate expansion plans are expected to gradually pick up as stabilisation returns and travel restrictions ease.
- Rents and capital values in the overall market are forecast to grow 0-5% in 2022. Investment yields are predicted to expand slightly throughout the year.