Research &
Forecast Report
Hong Kong | Office
1Q 2014
The China factor
matters
The traditional sub-markets of Hong Kong Island remained
quiet in 1Q 2014. Barring individual cases of mild expansion,
most activities were small transactions of 5,000 sq ft or below
from new startups, financial companies and business centres.
Tenants’ requirements in the Kowloon market were larger but
generally capped at 10,000 sq ft.
Colliers View
Given the projection of limited new completions and
sustained low vacancy (i.e. 4.9%) in the secondary market,
most tenants are expected to remain in situ upon lease
expiry in 2014. They will likely look at options to make
their offices more cost effective, including space planning
and remodeling. Some China based companies are the
exception, as they continue to expand outside of China
using Hong Kong as their first step. The latest example was
China Merchants Securities, who currently occupy 25,800
sq ft at One Exchange Square, recently committing to an
additional floor (i.e. 14,000 sq ft) in Tower 2 of the same
building.
Hong Kong Grade A Office Vacancy
16%
14%
Vacancy Rate
12%
10%
8%
6%
Long-term average
6.1%
4%
2%
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
0%
Source: Colliers
District
Overall Grade A Rents
Central / Admiralty
Wan Chai / Causeway Bay
Island East
Sheung Wan
Tsim Sha Tsui
Kowloon East
Current
2014F
$63.7
$92.9
$59.7
$43.6
$56.3
$50.0
$35.9
-2.1%
-0.1%
-1.8%
+1.6%
+1.0%
-2.4%
-8.8%
All units are expressed as HK$ per sqft per month on a net effective bases
Source: Colliers
Intensifying rental competition
The average Grade A office rent was virtually unchanged at
HK$64 per sq ft per month in 1Q 2014. Central rents remained
firm despite the fact that several Grade A buildings still have
significant space available. Kowloon East started showing signs
of rental decline due to competition from strata-title landlords
who opted to lease their units in view of a weakened sales
market.
Colliers View
Office rentals in 2014 are going to decrease slightly. Central
is likely to soften more than surrounding areas as individual
landlords adopt a more aggressive pricing strategy. Other
than that, most sub-markets on Hong Kong Island will see
nominal 1-2% growth. Tsim Sha Tsui and Kowloon East are
predicted to undergo distinct rental reductions. The key
reason is rental affordability as a result of the uncertainty
of the external business environment. In Kowloon East, it
is more of a supply issue as rental competition is further
intensified by the introduction of more stock from industrial
revitalisation projects.