- 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.
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)
Media Please Contact:
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Hong Kong
+852 2507 0637
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Creative
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