Office leasing sentiment improved, high street vacancies stabilized
HONG KONG SAR -
Media OutReach Newswire - 10 April 2024 - Global real estate services firm Cushman & Wakefield today held its
Hong Kong Property Markets Q1 2024 Review and Outlook press conference. Following the Government's announcement in the latest Budget that it would lift all demand-side management measures for residential properties, the market responded positively, with primary and secondary residential transactions strengthening notably and home prices picking up from March onwards. In the office sector, overall net absorption in Q1 remained positive, with the quarter also witnessing a y-o-y rise for new lettings, despite the high availability rate keeping rents under pressure. For retail, visitor spending continued to support a steady recovery in the market, with the overall high street vacancy rate remaining broadly stable.
Grade A office leasing market: Net absorption stayed positive in Q1 2024, companies seeking upgrading and relocation opportunities Overall net absorption of Grade A office space in Q1 remained positive at 264,200 sq ft, mainly driven by large-scale leasing transactions at new projects in Kowloon East, with the submarket recording net absorption of 289,700 sq ft. Four new office buildings completed in the quarter, located in Greater Central, Wan Chai/Causeway Bay, Hong Kong South, and Kowloon West. The expansion of leasable office space brought the availability rate up to 19.6%. Rental levels remained under pressure in the quarter, but the pace of decline was slower, edging down 0.6% q-o-q in Q1, and 6.7% y-o-y (Chart 1).
Chart 1: Rents of Grade A offices in Hong Konghttps://drive.google.com/file/d/1SyiYOG7hz48uZfHojgCYM3MjJjKNqsna/view?usp=drivesdk Source: Cushman & Wakefield Research In terms of new letting activities, a total of 889,000 sq ft of leased space was recorded in Q1, an increase of more than 40% y-o-y. Kowloon East was the most sought-after submarket, accounting for more than 40% of the newly leased space, with the district benefitting from attractive rents with a greater offering of new prime quality buildings and ESG-certified office space. By business sector, the public sector (23%) accounted for the highest share of newly leased space, while the banking and finance (21%), professional services (15%) and insurance (13%) sectors also recorded double-digit shares.
John Siu, Managing Director, Head of Project and Occupier Services, Hong Kong, Cushman & Wakefield,said, "We have observed several large-scale office leasing transactions over the quarter, while the total new lettings in the past three quarters were higher than the five-year quarterly average of 640,000 sq ft, indicating a relative improvement in leasing sentiment. Currently, many multinational companies are making ESG a key requirement when choosing local offices. With more new office buildings scheduled for completion this year, there will be a greater spectrum of quality offices with international ESG building certifications available in the market, which will encourage more upgrading and relocation activities to take place while rents are still attractive."
Retail leasing market: Overall high street vacancy rate stabilized, rents across districts rose steadily Against the backdrop of changing consumption patterns from both tourists and residents, total Hong Kong retail sales for the January to February 2024 period combined recorded HK$70.3 billion, growing at a modest 1.4% y-o-y, a somewhat slower pace compared to last year. Among retail categories, sales of Medicines & Cosmetics recorded y-o-y growth of 21.7%, followed by Jewellery & Watches and Fashion & Accessories at 8.8% and 7.4%, respectively. Supported by tourist spending, the overall high street vacancy rate largely stabilized. Retail leasing activities were relatively more concentrated on Hong Kong Island in Q1, with the vacancy rate in Central dropping by 1.5 percentage points q-o-q to record 7.0%, while vacancy in Causeway Bay remained stable at 2.6%. However, with some festive period pop-up stores now departing high streets, vacancy rates in Mongkok and Tsimshatsui rose to 11.1% and 11.8%, respectively. Despite the city's inbound tourism recovery, the structural shift of Hong Kong residents more frequently traveling northbound to spend in the Greater Bay Area mainland cities has hindered local consumption in town, in turn dampening recovery in retail rent growth. As a result, high street rents across retail districts recorded mild growth in Q1, ranging from 0% to 1% q-o-q. In the F&B sector, local operators generally remained cautious, leading to softer growth for F&B rents. Causeway Bay and Central F&B rents edged up 1% q-o-q, while Tsimshatsui and Mongkok recorded a drop of 2% q-o-q.
Chart 2: High street retail rents in prime districts in Hong Konghttps://drive.google.com/file/d/15xK6ZQQd7oYy6bbG6THJLDvbniwxiLaw/view?usp=drivesdk S...
