Hong Kong’s reopening to revive office market from its longest and deepest slump, but upswing in rents will have to wait

The reopening of Hong Kong’s borders and a stabilising pandemic will act as a catalyst for moribund office market, says Swire Properties’ Don Taylor

Additional office space of 8.2 million sq ft expected in the next two years and record high vacancy rates are likely to push rents lower this year and next, says property consultancy

Demand for office space in Hong Kong will receive a boost from the city opening up to the rest of the world, but the segment still faces significant headwinds in the short to medium-term, according to one of the city’s largest landlords.

“With the gradual reopening of the international borders and the pandemic starting to stabilise, we anticipate that this could prove to be a catalyst for demand,” said Don Taylor, director of office at Swire Properties, noting that this would allow in-person inspections of real estate and also removes some of the uncertainty for international companies with regional offices here.

There is no doubt that, in the short to medium-term, the Hong Kong office market is up against some uncertainty, he added. “Given the current state of the Hong Kong economy, slowing growth in the Chinese mainland, the imbalance between demand and supply in the local office market, as well as the real threat of a global recession, rents are likely to remain under pressure into next year.”

But, given Hong Kong’s growing importance to the future of the Greater Bay Area and as a global financial centre, there will be continued demand for high quality grade A office space, he said.

The city’s economy shrank 1.4 per cent in the second quarter of this year, following a 3.9 per cent contraction in the first three-month period, confirming fears that stringent social-distancing curbs had affected economic activity far more adversely than initially estimated. In August, the government further cut its annual forecast for the city’s economy to between 0.5 per cent growth and 0.5 per cent contraction. It previously estimated growth of 1 to 2 per cent.

Meanwhile, China’s economy has also seen a considerable slowdown, as Beijing clings to a zero-Covid policy that has hobbled business operations across the country. The world’s second-largest economy grew at a slower-than-expected 0.4 per cent in the second quarter, reflecting the toll of wide-ranging lockdowns in the capital Beijing and financial hub Shanghai. The lockdowns hammered economic output and are also likely to put the nation’s 5.5 per cent growth target for this year out of reach.

The additional office space of 8.2 million sq ft expected in the next two years, according to a property consultancy, on top of the already record-high vacancies this year, estimated at 9.6 million sq ft as of March, is tipped to drag rents down by as much as 5 per cent this year and by another 5 to 10 per cent next year.

The current downturn in Hong Kong’s office property market has been described by the agency as its “longest and deepest”.

Demand from mainland Chinese firms accounted for as much as a fifth of leasing transactions in Hong Kong before a property market downturn in 2019. But with China’s borders staying closed, demand from mainland companies is likely to remain soft, agent said.

“In the three years between 2016 and 2018, for instance, mainland Chinese firms leased an average of 750,000 sq ft of grade A office space per annum,” the agent said.

Between March 2019 and March 2022, the real estate footprint of mainland Chinese companies grew by only 35,000 sq ft, according to the consultancy. On the other hand, demand from western firms shrank by between 1.3 million sq ft and 1.4 million sq ft.

Swire Properties is set to launch Two Taikoo Place in Quarry Bay. The 42-storey office tower with a gross floor area of 1 million sq ft is slated for occupancy before the end of the year. Majority of its portfolio tenants, however, are western firms.

“In our Pacific Place portfolio, just under a quarter of our tenant base is from the Chinese mainland,” Taylor said. “That figure for Taikoo Place is significantly lower but growing. We’ve always maintained a diverse and balanced tenant base across our portfolio, both in terms of nationality and the sectors they operate in.”

Despite the prevailing uncertainty and current state of the market, Swire’s core portfolio, which includes both Taikoo Place and Pacific Place, has seen occupancy in the high 90 per cent range, said Taylor.

Two Taikoo Place has so far secured commitment for 50 per cent of its space, he added. Its tenants include Julius Baer, which will take up four floors spanning close to 100,000 sq ft, and two other banks that will lease close to 200,000 sq ft. Other tenants are Amundi, BASF and Boston Consulting Group.

Other new office property supply expected this year includes AIRSIDE in Kai Tak and 98 How Ming Street in Kwun Tong. These will increase new office supply to 5 million sq ft, according to another property consultant.

An agent said that the gradual resumption of international travel will have a positive effect on office leasing activity and demand in the next few months.

“However, record-high vacancies and a supply boom will ensure rents soften further and stay at low levels” in the short-term, the agent added.

(South China Morning Post)

For more information of Office for Lease at Two Taikoo Place please visit: Office for Lease at Two Taikoo Place

For more information of Grade A Office for Lease in Quarry Bay please visit: Grade A Office for Lease in Quarry Bay

For more information of Office for Lease at Pacific Place please visit: Office for Lease at Pacific Place

For more information of Grade A Office for Lease in Admiralty please visit: Grade A Office for Lease in Admiralty

For more information of Office for Lease at AIRSIDE please visit: Office for Lease at AIRSIDE

For more information of Grade A Office for Lease in Kai Tak please visit: Grade A Office for Lease in Kai Tak

For more information of Office for Lease at 98 How Ming Street please visit: Office for Lease at 98 How Ming Street

For more information of Grade A Office for Lease in Kwun Tong please visit: Grade A Office for Lease in Kwun Tong

長實海韻軒酒店申改建1503伙

疫情下本港酒店業為重災區之一，部分財團決定將酒店轉作住宅發展。長實旗下紅磡海韻軒海景酒店向城規會申請全幢改裝，以提供約1503個住宅單位及約442個酒店房間，當中酒店房間數目較現時大減約78%。

據城規會文件顯示，項目位於紅磡紅樂道12號，目前屬「商業 (3)」地帶，申請擬議分層住宅及准許的酒店、商店及服務行業和食肆用途並略為放寬私家車 / 貨車公眾停車場的總樓面面積。

住宅總樓面逾80萬呎

地盤面積約106994方呎，住宅部分總樓面約802090方呎，非住宅樓面約401756方呎。擬議發展將現時的海韻軒酒店改建成約1503個住宅單位及約442個酒店房間，當中酒店房間數目對比現時的1980個，大幅減少1538個或約78%。

現時該酒店共有3幢物業，是次改建住宅分布於第1座及第2座，而第3座則作酒店用途。據發展計畫，在較低樓層則設有零售和餐飲設施。在優化地下至二樓的空間布局以容納所需的內部運輸設施、住宅和酒店大堂、機電設施等後，擬議發展能提供一個約149135方呎的公眾停車場。

酒店房大減約78%

由於所提供的總樓面面積比核准圖規定作提供私家車/貨車公眾停車場的不少於175453方呎的總樓面面積減少約15%，因此需要略為放寬私家車 / 貨車公眾停車場的總樓面面積。

申請人指，擬議發展計畫能在短期內提供約1503個住宅單位，與政府增加房屋土地供應的政策相符。而且設獨立的出入口、電梯大堂等能夠將同一樓宇內的住宅及酒店用途實際分開，並不會構成 協調問題及避免對將來住客造成滋擾。

而且紅磡海濱原定旅遊發展計畫從未實現，申請地點作為尖沙嘴東部酒店中心區的擴展部分的功能已逐漸減弱。該地區有充足酒店房間供應，以應付預期旅遊業復甦期間的需求。擬議發展計畫不會增加現時建築物的高度或體積，因此楷梯式的高度和視覺走廊將能保留。

資料顯示，上述項目曾在2018年獲屋宇署批建兩幢29層高的商廈，以及1幢2層高的物業，總樓面約110.73萬方呎。

(星島日報)