Hong Kong office demand has dropped significantly as corporations continue to take a cautious approach towards new lease commitments amidst global economic uncertainty caused by the outbreak of COVID-19, as well as the US-China trade war and social unrest carried over from 2019. Decentralisation remains a key focus, with the majority of recorded take-ups in Kowloon East.
Increased vacancy rates across all districts has exerted downward pressure on overall market rents, leading to a decrease of 1% month-on-month (m-o-m). Central in particular, saw vacancy rates rise to 4%, the first time it has reached this level in over 5 years.
With weakening demand, new lettings in prime locations such as Central dropped an estimated 50% m-o-m. The majority of activities were primarily driven by existing tenants within the central business district (CBD) that were seeking expansion and relocation within the same district.
With the slowdown of the office leasing market, the already quiet investment market recorded only an ample number of transactions, of which the lump sum of transactions were relatively small and outside the CBD.
While we expect corporations to remain cautious on their real estate decisions, flexible space operators such as serviced offices and co-working spaces will focus on attracting companies that are looking at cost saving, flexible office solutions, especially with home office arrangements becoming more of the norm in 2020.