The View | Hong Kong’s office leasing market is becoming a tenants’ market and is on the road to recovery
- Although the economic uncertainty has not gone away, leasing sentiment has turned more upbeat as the market becomes increasingly tenant-friendly
- The most important catalyst by far has been the sharp rental correction, accentuated by Central’s status as the world’s most expensive office market
Yet, as I argued previously, for a market that has suffered a succession of external and domestic shocks over the past three years, and where expectations are so low, it is easy for sentiment to improve if there are signs that activity is picking up.
While rents are expected to continue to decline this year amid a further increase in vacancy rates, the occupier market is starting to recover. The deterioration in fundamentals has abated. On a quarter-on-quarter basis, gross leasing activity increased 27 per cent last quarter, the third consecutive quarter of growth, even though net absorption continued to contract, a report published by CBRE on April 15 showed.
What is more, Greater Central, which includes Admiralty and Sheung Wan, enjoyed its second straight quarter of positive net absorption. Although the pickup in leasing volumes was flattered by a couple of large transactions, the recovery in demand in the district that was hardest hit – prime rents in Central itself are down 25 per cent from their peak in the second quarter of 2019 – marks a turning point.
Although the economic uncertainty and pervasive sense of caution among occupiers have not gone away, leasing sentiment has turned more upbeat as the market becomes increasingly tenant-friendly. “Last year, everyone was on hold. This year, we’re definitely seeing more activity,” says Ada Fung, head of office, advisory and transaction services at CBRE in Hong Kong.