APPD Market Report Article

Hong Kong

May 26, 2024

Cathie Chung, Senior Director, Hong Kong


HKD 80.4


A new completion drives positive net absorption

  • In 1Q24, Grade A market sentiment remained relatively weak, with subdued overall demand amid a low level of activity. However, new letting and expansion cases saw an improvement q-o-q across the board. Mainly attributable to the realisation of pre-committed space in completed projects, net absorption in the overall market reached 283,000 sq ft during the quarter.
  • The flight-to-quality trend continued to dominate, particularly in submarkets where high-quality new office space was available. Among a handful of new lettings, LVMH leased two floors of 47,200 sq ft (LFA) at Two Taikoo Place in Quarry Bay, to expand from Dorset House in the same district.

Three Grade A office projects complete in 1Q24

  • Three projects were completed in 1Q24: The Henderson in Central, Six Pacific Place in Wan Chai and Viva Place in Wong Chuk Hang, adding 709,000 sq ft (NFA) of space to the market.
  • Partly driven by new completions, the overall vacancy rate continued to rise to 13.1% as of end-March from 12.8% in 4Q23. Central’s vacancy rose to 10.6%. The vacancy rate in Hong Kong East and Kowloon East dropped to 13.2% and 18.0%, respectively. Conversely, the vacancy rate in Wan Chai/Causeway Bay rose to 10.4%.

Rents decline across all submarkets

  • Rents in the overall market declined by 2.7% q-o-q in 1Q24, with all submarkets registering declines. Notably, rents in Central dropped 4.9% q-o-q, mainly due to competition from new projects pressuring rents downward, especially premium buildings with higher vacancies. Rents in Wan Chai/Causeway Bay, Hong Kong East and Kowloon East dropped by 0.6%, 2.2% and 1.3% q-o-q, respectively.
  • The investment market remains gloomy, while more sales at a loss were observed during the quarter. Investment volume dropped significantly q-o-q to 96.2%, mainly due to a lack of notable transactions and a high base in 4Q23. Capital values in the overall market dropped by 3.0% q-o-q in 1Q24, while investment yields expanded marginally.

Outlook: 2024 marks new supply arrival

  • The tenant market is set to remain in 2024. Although renewals are likely to be the preferred tenant choice, some have made use of the tenant-friendly situation to move up the quality ladder. Most landlords are likely to keep their rents steady due to low demand and high vacancy levels, driven by a projected influx of new supply in the reminder of 2024 (around 1.9 million sq ft).
  • Looking forward, the prevailing trend in the market will involve companies relocating and consolidating their operations towards more cost-effective options. There will likely be a positive overall net take-up due to pre-commitments for new projects in 2024. Rents are expected to face downward pressure due to limited expansion demand. Overall Grade A office rents should drop by 5%–10% in 2024.

Note: Hong Kong Office refers to Hong Kong's overall Grade A office market.

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