APPD Market Report Article

Hong Kong

September 4, 2023

Cathie Chung, Senior Director, Hong Kong


HKD 88.7


Market sentiment gradually improving

  • Market sentiment has improved with the general economic recovery and border re-opening, leading to more leasing enquiries for Grade A office space. However, the number of sizable transactions concluded were limited. Net absorption in the overall market was -503,700 sq ft in 2Q23, due to the return of some sizable spaces to the market during the quarter.
  • The flight-to-quality trend still prevailed, especially in decentralised submarkets with ample new high-quality supply. For example, premium spirits producer Edrington leased part of one floor at Two Pacific Place in Admiralty to upgrade and expand its offices from Exchange Tower in Kowloon Bay.

No supply completes in 2Q23

  • There was no new supply that completed in 2Q23.
  • The overall vacancy rate rose to 12.6% from 12.0% as at end-June. Central’s vacancy rate rose to 9.4%, while the vacancy rates in Wanchai / Causeway Bay and Hong Kong East rose by 0.4 ppts and 1.3 ppts, respectively. Vacancy in Tsimshatsui dropped by 0.3 ppts.

Stabilising rents, with mild declines

  • Rents in the overall market declined 1.1% q-o-q in 2Q23 with almost all submarkets registering marginal declines. Notably, rents in Central dropped 1.6%, while rents in Wanchai / Causeway Bay and Hong Kong East dropped by 0.5% and 1.4%, respectively. Tsimshatsui, on the other hand, registered rental growth of 0.3% sustained by limited premium office space.
  • Capital values in the overall market dropped by 1.4% q-o-q in 2Q23, while investment yields expanded marginally.

Outlook: Rents to stabilise in 2023

  • Entering 2H23, consolidation and upgrading activities should continue to support leasing demand. Benefitting from the negative rental reversions (approximately 30% comparing to market peak in 2019), real estate costs are well alleviated, and tenants are therefore increasingly enticed to upgrade or expand their office spaces.
  • We expect the rents in 2H23 to drop 0%–5% in 2H23, with a full year forecast of a 0%–5% decline, although the level of market activity is likely to lean towards a positive direction. The emergence of new supply should keep some submarkets facing rental pressure as they absorb the new supply. In the near term, rents are expected to bottom out with an improved outlook on the local and global economy.

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

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