The COVID-19 epidemic has impacted the business environment in Hong Kong, and many companies have been forced to reduce office space to save money. Jones Lang LaSalle announced "Hong Kong Real Estate Market Watch" yesterday and pointed out that the vacancy rate of Class A office buildings in Central rose to 5% in May, the highest since the 2008 global financial tsunami, resulting in a 2.7% drop in rents to an sq ft price of HKD102.4.
Journalist (Lai ChiTin)
Jones Lang LaSalle expresses that the overall office vacancy rate rose to 7.4% last month, and rents fell by 2.2% monthly. Tsim Sha Tsui and Kowloon East, which have the highest vacancy rates among all commercial areas, recorded the most significant drop in rents. According to data from the company's research department, the vacancy rates in Tsim Sha Tsui and Kowloon East rose to 6.5% and 13.7% respectively in May. The vacancy rates in Wan Chai/Causeway Bay and Hong Kong Island East also rose to 6.1% and 3.6%, respectively.
Kowloon East's commercial vacancy rate exceeds 13%.
The Head of Department of Commerce of Jones Lang LaSalle Hong Kong, Alex Barnes, expresses that the rising vacancy rate continued to put pressure on rents. However, the decline in rents has eased over the past few months. The rent for Class A office buildings in Central dropped by 4.5% monthly in April and then fell by 2.7% monthly in May. He added that the economic prospects are unclear. The landlords are more willing to lower their rent expectations than before, and tenants tend to renew their leases to save capital expenditure on relocation.
The Greater China Research Department Director of Jones Lang LaSalle, Woo Chi-Fai, expresses that rental demand is still weak. The overall Class A office market recorded a negative absorption of 195,600 square feet in May, and Central recorded a negative absorption of 115,600 square feet, the highest monthly number since more than a year. The new lease transactions are mainly concentrated in markets outside Central. Two of the financial institutions that found cost-effective office locations in non-core business districts chose to settle in Lee Gardens Phase 3 in Causeway Bay and leased a total of 18,900 square feet.
Lease cancellation in Central may increase by 30% in the short term.
CB Richard Ellis also estimated earlier that nearly 1.1 million square feet of office space in the Central District of Hong Kong would be abandoned by enterprises as of the end of May, with an area equivalent to HSBC's Hong Kong headquarters. The vacancy rate would be as high as 8.5%, the highest since December 2009.
The analyst of Real estate data provider Savvi, Chris Cohen, said that the number of the surrender of tenancy in Central District might increase by 30% in the next three months. Since many leases will expire this year and next year, landlords have no choice but to reduce rents to retain customers significantly.
Some mainland science companies continue to expand the lease in Hong Kong commercial buildings.
In contrast, mainland technology companies expand office space in Hong Kong. According to market sources, both ByteDance, which owns TikTok and Alibaba, have signed leases to increase office space in Hong Kong. ByteDance and Alibaba declined to comment.
Speaking of the recent case of rent abandonment in the core area, WeWork abandoned the lease of the newly completed H Code, Pottinger Street, Central, involving nearly 100,000 square feet. The property mentioned above was renovated at the end of last year and was officially used this year. Some area is rented by Deliveroo, which is a takeaway platform. In the end, WeWork chose to abandon the lease, while Deliveroo continues to rent to the landlord. The other floors are expected to be returned to the landlord to release. It is estimated to be 20,000 to 30,000 square feet, and the market value of the lease is about HKD50.
