As Occupy Central enters into its second month, there are some concerns that the protests may derail the nascent recovery in the Central office market – where rents have returned to growth after two years of decline. Aside from disruptions to traffic flow, there are fears that the protests will tarnish Hong Kong’s long-term standing as a regional business centre or, worse still, could lead to a withdrawal of policy support from the mainland government. Questions have already been raised as to whether the protests were the reason behind the delayed launch of the Shanghai-Hong Kong Stock Connect pilot programme, a new cross border investment channel linking the two exchanges.

While these fears are conceivable, the reality is that the protests have yet to have any real impact on the Central office leasing market. For most of our clients, it’s business as usual. Importantly, none have withdrawn or scaled-back expansion plans because of the protests and none have indicated plans to relocate offices out of Hong Kong.

The few early indicators available in the market support this view. The Hang Seng Index, a bellwether for the health of city’s financial sector and Central office market, has remained largely unaffected – closely following global indices, including a 2% rise through October – while our latest in-house indicators for the Central office market show rents rising by another 0.2% m-o-m during the first month of the protests. The vacancy rate in Central did edge higher in October, from 3.6% to 3.8%, but this was largely due to a large lease expiry and at the top-end of the Central office market – i.e. Grade A1 – vacancy remained at just 2.0%.

There are, however, still significant headwinds for the Central office market over the near-term. Most notably, the end of QE in the US and steady normalisation of interest rates along with the ongoing slowdown of the mainland Chinese economy have the potential to weigh on office demand and rents. Rising short-term interest rates could trigger another ‘taper tantrum’ leading to strong capital outflows and the destabilisation of currencies and growth in the region, which would affect economic growth in both China and in Hong Kong.

In our opinion, it is the macroeconomic environment, rather than Occupy Central, that poses as the greatest risk to the recovery of the Central office market over the near-term. For the city’s retail sector, however, Occupy Central may just be the straw that breaks the camel’s back.

Central Grade A office index

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