Record-high rents in Greater Central push for more decentralization cases
- Grade A office rents rose for all districts in Q1 and Greater Central rentals reached HK$134.3 per sq ft per month, a new record high
- Tenants in Greater Central continued to look for cost-effective alternatives against a rising rental market
- Retail rents stabilized for most core districts and the athleisure sector continued to expand across the city.
HONG KONG, CHINA – Media OutReach – 17 April 2018 – The Hong Kong Grade A office market remained active in the first quarter of 2018, according to Cushman & Wakefield, as rents rose in all submarkets against solid occupier demand that saw the overall net absorption amounting to 556,203 sq ft. With Greater Central rents rising 2.4% q-o-q and reaching HK$134.3 per sf per month, the pace of decentralization, especially from tenants in the professional services sector, accelerated in Q1. The retail leasing market also showed positive signs against increased tourist arrival figures and retail sales volume in January and February, thanks to the Chinese New Year Holiday factor. High street rents stabilized in nearly all core districts except for Central, where a mild drop of 1.7% was recorded.
Led by increases in Hong Kong South (2.9% q-o-q) and Greater Central (2.4% q-o-q), overall office market rentals rose by 1.8% q-o-q to HK$74.2 per sq ft per month in Q1. The average monthly rent in Greater Central and Prime Central reached new heights, amounting to HK$134.3 per sq ft and HK$161.0 per sq ft, on the back of tightening availability. Such limited availability, however, also restricted leasing activity in the submarket, which continued to be dominated by PRC occupiers. Despite the availability rate in Kowloon East climbing to a new eight-year high owing to new supply, rentals in the submarket grew 1.6% q-o-q to HK$35.4 per sq ft per month on the back of robust demand for office space in newly completed projects. Mr John Siu, Cushman & Wakefield’s Managing Director, Hong Kong, said, “Tenant sentiment of Kowloon East continued to improve as evidenced by several sizable new commitments in the submarket during the quarter. High-spec new office supply has caught the eyes of companies in search of space for consolidation and expansion requirements.”
The rising rental market in Greater Central continued to see tenants looking for cost-effective alternatives elsewhere. Notable transactions included Goldman Sachs’s relocation of their back-office operations from The Center in Greater Central to Lee Garden Three (93,000 sq ft) in Causeway Bay. Meanwhile, Ernst & Young have committed to lease 184,000 sq ft in Swire Properties’ Taikoo Place while FTLife Insurance is moving and consolidating their offices in Greater Tsimshatsui to approximately 73,000 sq ft at the newly completed Hong Kong Pacific Tower in Kowloon Bay.
Demand for space from the co-working space sector also shows no sign of abating with Guangzhou-based operator ATLAS Workplace leasing approximately 35,000 sq ft at The Gateway Office Towers portfolio while Shanghai-based naked Hub committing to 38,000 sq ft in Two Harbour Square during the quarter. Mr Keith Hemshall, Cushman & Wakefield’s Executive Director, Head of Office Services, Hong Kong, commented, “Professional services companies are increasingly evaluating the viability of decentralized areas given the climbing rents and fragmented nature of available space in core districts. The co-working sector is accounting for a steadily increasing share of new leases as PRC groups vie with more established US & UK operators to secure blocks of space throughout Hong Kong.”
Hong Kong’s retail leasing market witnessed further positive signs in Q1, mainly due to the Chinese New Year Holiday factor. Tourist arrivals during January and February posted y-o-y growth of 9.9%, led by a substantial increase in those from Mainland China (13.6%). Retail sales over the same period recorded growth of 15.7% y-o-y which was the best January-February record in the last five years, according to government figures. Increasing sales figures were led by jewelry & watches and fashion & accessories which both recorded a growth of around 20%. As a result, core retail rentals remained relatively stable, with the average rent in Tsimshatsui and Mongkok edging up by 0.5% q-o-q. Central rents recorded a mild drop of 1.7% despite the vacancy of the submarket improving from 7.1% in Q4 2017 to 4.3%.
F&B rentals continued to drop in nearly all core areas with the decrease in Causeway Bay and Tsimshatsui worsening in Q1 while the retreat in Central easing to 1.4% q-o-q (compared with a 3.4% q-o-q decline in Q4 2017). Mongkok was the only core district that recorded growth with rents edging up by 0.1% q-o-q. Despite the continuous growth in F&B spending, operators remain cautious in expansion amid rising labor cost, thus dampening the prospects of a stabilizing rental trend.
Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head of Retail Services, Hong Kong, said, “Athleisure was the focus of the retail leasing market in Q1 which witnessed several instances of expansion such as MLB in several core districts. The business prospects for the sector are robust, supported by the rising awareness towards a healthy lifestyle driving increasing purchases of sports and accessory products. In terms of the desire to expand, the athleisure sector is more active than the fast fashion sector and we expect it to be a major force in the retail leasing market this year.”
About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Across Greater China, there are 20 offices servicing the local market. The company was named the top China real estate services firm in four categories of Overall, Valuation, Agency/Letting and Research by Euromoney’s 2017 Survey. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)
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