Buyers' clamour for brand new Grade A office buildings spark demand in non-core areas

Kowloon Bay could be in for a demand surprise.

According to JLL, returning stock and weak leasing demand contributed to the occupier market contracting by about 100,100 sq ft (net) in May with Central (17,000 sq ft, net) and Kowloon East (2,000 sq ft, net) the only major office submarkets recording positive growth during the month.

Here's more from JLL:

Leasing demand continued to be underpinned by smaller requirements. In Central, demand was largely from new set-ups including hedge funds and private equity firms.

Serviced business centre operators were among the few tenants in the market looking for slightly larger offices. In Tsimshatsui, Regus leased a floor in Wharf T&T Centre while Compass leased 11,520 sq ft (gross) in the nearby Silvercord Tower 2.

Investment activity picked-up slightly in May, led by end-user demand for non-Grade A office buildings on Hong Kong Island. In the primary sales market, buyers continued to show interest in newly completed Grade A office buildings in non-core areas such as YHC Tower in Kowloon Bay and Billion Plaza II in Cheung Sha Wan.

The investment market was highlighted by the sale of a whole floor in Exchange Tower in Kowloon Bay for HKD 317.1 million (HKD 11,550 per sq ft, gross) and the sale of a floor in Rykadan Capital Tower in Kwun Tong for HKD 118.7 million (HKD 9,825 per sq ft, gross). The sale price of the floor in Rykadan Capital Tower was about 25% higher the amount paid by the vendor in November 2012.

The government released a commercial site (KIL 11237) in Tsimshatsui for sale via public tender. Located at 15 Middle Road, the site covers an area of 28,309 sq ft (gross) and has a maximum buildable GFA of about 339,700 sq ft.