APPD Market Report Article

Hong Kong

December 1, 2021


HKD 90.3


Office occupiers reconfigure their real estate plans

  • Overall Grade A office net absorption was -279,900 sq ft in 3Q21 as corporate downsizing activities lingered. The higher availability in the market offered more options to office tenants, some of which took the opportunity to reconfigure their real estate plans. Notably, healthcare company Bupa leased 92,500 sq ft (GFA) at The Quayside in Kwun Tong to consolidate its offices.
  • The business centre sector expanded as flexibility and wellness amenities were considered as essential real estate features by office tenants. For instance, Compass Offices expanded in-house at both Lee Garden One in Causeway Bay (16,200 sq ft, LFA) and Infinitus Plaza in Sheung Wan (11,900 sq ft, GFA), while Regus leased another floor (24,500 sq ft, GFA) at The Gateway Tower 5 in Tsimshatsui.

Future supply remains concentrated in decentralised districts

  • No Grade A office buildings were completed in 3Q21. Landmark South in Wong Chuk Hang is slated for completion in 4Q21, adding 169,100 sq ft to the Grade A office stock. There is around 4.8 million sq ft of Grade A office space, all of which in decentralised locations, expected to be delivered in 2022.
  • The Henderson, a premium grade office building in Central developed by Henderson Land, has secured its first tenant. The building is anticipated to be completed in 2023 and would be the first Grade A office building to be delivered in the central business district since 2013.

Rents and capital values in Central begin to recover

  • Overall market net effective rents dropped by 0.5% q-o-q in 3Q21 as the rental decline abated. Central experienced a rental growth of 0.6%, mainly driven by healthy demand for premium office space in the submarket.
  • Capital values in the overall market fell by 0.9% q-o-q in 3Q21, while Central registered a capital value growth of 0.6%. Investment yields stayed at 2.8% for the overall market.

Outlook: The office sector heads towards a full recovery

  • While rental growth has already been recorded in Central, the other submarkets are expected to have further rental decline at moderated magnitude in the near future. The overall market is on the cusp of a full recovery and rents in different submarkets would reach the bottom at various times in the upcoming 12 months, though the rental growth trajectory may be hampered by high vacancy rates.
  • There would be more investment activities when there is better clarity in post-pandemic office demand. Capital values are forecast to move largely in line with rents. Investment yields would remain stable.

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

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