APPD Market Report Article

Hong Kong

February 22, 2024

Cathie Chung, Senior Director, Hong Kong


HKD 84.6


Positive net absorption driven by new completions

  • In 4Q23, Grade A market sentiment was relatively weak, with overall demand being subdued amid a low level of activity. Net absorption in the overall market was 1.1 million sq ft in 4Q23, mainly due to the realisation of pre-committed space in two completed projects.
  • The flight-to-quality trend continued to dominate, particularly in fringe submarkets where an abundance of high-quality office space is available. Among a handful of new lettings, PUMA leased 37,500 sq ft (GFA) at AIRSIDE in Kai Tak to relocate from Kowloon Bay.

Two Grade A office projects complete in 4Q23

  • Immigration Headquarters in Tseung Kwan O and 83 King Lam Street in Cheung Sha Wan were completed in 4Q23, adding 1.4 million sq ft (NFA) of Grade A office space to the market.
  • Partly driven by new completions, the overall vacancy rose to 12.8% at end-December from 12.7% at end-September. The vacancy rate in Central and Hong Kong East rose marginally to 9.9% and 13.5%, respectively, while that for Wan Chai/Causeway Bay and Tsim Sha Tsui dropped by 0.2 and 0.4 percentage points, respectively.

Rents decline across all submarkets

  • In a tenant-favourable market, rents in the overall market declined 1.7% q-o-q in 4Q23, with all submarkets registering declines. Notably, rents in Central dropped by 1.9% q-o-q, while rents in Wan Chai/Causeway Bay and Hong Kong East dropped by 0.7% and 2.5% q-o-q, respectively. Overall rents dropped by 5.9% for the whole year.
  • Capital values in the overall market dropped by 2.1% q-o-q in 4Q23, while investment yields expanded marginally.

Outlook: Limited expansionary demand amid abundant supply

  • The year 2024 is set to remain a tenant market, driven by upgrade demand and a focus on new buildings that also meet sustainability demands. Despite the large supply, which may increase pressure on vacancy rates, new high-quality buildings are expected to attract occupiers seeking quality office spaces. 
  • We expect to see more leasing enquiries translate into actual transactions. However, the dominant trend is anticipated to involve relocation and consolidation towards cost-effective options. While pre-commitments for new projects will contribute to a positive net take-up, rents are expected to continue facing downward pressure, and decrease by 5%-10% owing to limited expansion demand.

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

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