Hong Kong tumbling office rents attract companies back to Central

Central, Hong Kong’s prime business district, sees 15-year high in its vacancy rate at 7.6 percent 

Grade A office rents have dropped circa 25 percent over an 18-month period. Cozyta/Shutterstock

In Hong Kong, multinational companies are moving back to Central, the city’s prime business district, as office rents are tumbling by a quarter from two years ago, offering firms the opportunity to get an address in Hong Kong’s iconic buildings, reported South China Morning Post 

S&P is relocating to Three Exchange Square in Connaught Place, the complex that also houses the Hong Kong stock exchange and the Hong Kong International Arbitration Centre.  

Moreover, better rental packages have persuaded private equity firm FountainVest Partners to move to IFC, one of Hong Kong island’s trophy buildings. According to Colliers, FountainVest leased 9,000 square feet at HKD130 (USD16.7) per square feet, around seven percent lower than the rents a year ago.  

As stated by Savills, such moves followed Central’s 7.6 percent vacancy rate, which equals 1.2 million square feet of empty space. This 15-year high vacancy rate also resulted in rents dropping by 3.8 percent.  

Fiona Ngan, head of office services at Colliers Hong Kong, said, “Flight to quality is certainly a trend which companies are looking at.” 

“Grade A office rents have dropped circa 25 percent over an 18-month period so businesses can look to make the most of this drop and relocate to Central for the same cost from fringe or decentralised districts,” she added.  

During the peak of office rents in mid-2018, the gap between Central and Island East was around 175 percent, but this gap has reduced to 120 percent, as said by Colliers. Island East is popular among companies as a non-central office option on Hong Kong island.  

“In Central, rental declines and a stagnant 2020 have encouraged an increase in demand within the district, both for cost-saving moves that allow for changes in workplace standards, and equally, upgrading moves,” mentioned Alex Barnes, head of the office leasing advisory at JLL.  

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He added that “Two IFC for example has been a hotbed of activity in the last six months with tenants moving and expanding from nearby buildings into a trophy building. There is pressure on the district and market as a whole, but there are pockets of activity that are centred on these trends.”  

Daniel Wong, Midland IC&I CEO, said that other submarkets are also likely to see further rental drops, attracting more companies. Kowloon East is probable to underperform, with rents declining between five and 10 percent this year due to oversupply.  

“As a trend, we think that decentralisation will still take place,” Wong added.