Office rental growth slows in Q2: report

Supply in core area remained tight as new prime spaces will only be out by 2023.

Although all areas reported positive rental growth, the rate has slowed down compared to Q1, according to a report by real estate expert Savills. Central rents and Grade A offices went up 0.9% and 0.8% respectively, down from 2.9% and 1.6% in the first quarter. Rents in Wanchai/Causeway Bay, Island East and Tsim Sha Tsui also rose slowly.

Savills noted that compared to other areas, rents Kowloon East and Kowloon West rose at a faster pace, recording 1.0% and 1.3% growth respectively compared to the 0.5% and 1.2% growth in Q1. Kowloon East rents posted the strongest performance in all sub-markets, rising by 1.3% during the quarter.

Availability of office space in core areas will remain tight. Only four major office projects to be completed between 2019 and 2022, all of which are located outside central. Accordingly, new supply will remain thin until 2023 when the Murray Road carpark redevelopment, URA Peel Street/Graham Street Site C and the Hutchison House Redevelopment are set to be completed.

The report observed family offices and virtual banking as the emerging demand drivers in the office leasing market. Although family offices are small, they are reportedly looking for spaces in prime locations and are willing to pay prime rents. Since March, eight virtual bank firms licenses had been granted by the Hong Kong Baking Authority, with the firms looking for spaces in non-prime locations.

Vacancy rates are also on the rise, with the overall vacancy rate increasing to 3.1% to 2.6% in the first quarter. Savills attributes this to the decelerating rate of rental growth and an uptick in unemployment in the Finance Insurance Real Estate and Business Services (FIREBS) sector.