Decline in leasing of Grade A office space expected, rents to drop by 5% to 15%
Overall Q4 office rents adjusted downward by 4.0% quarter-on-quarter to HK$69.60 per sq. ft. per month while the office availability rate dropped from 3.9% to 3.6% as compared with the previous quarter. Average monthly rent in Greater Central (including Sheung Wan, Central and Admiralty) fell to HK$118.30, a quarterly decline of 5.9%, the greatest drop among all districts. John Siu, Executive Director of Cushman & Wakefield (Hong Kong), said, "Occupants of Greater Central office buildings have cut or even halted their expansion of office space amid unfavourable factors, such as the European sovereign debt crisis, global economic uncertainties and lacklustre performance of the local stock market. Landlords are not optimistic about the economy in 2012 and have lowered asking prices in addition to offering more flexible lease terms and conditions in order to entice renewals and attract new tenants."
Jonathan Sullivan, Research Manager of Cushman & Wakefield (Hong Kong)said, "418 new leases of Grade A office space comprising a total floor area of 3.63 million sq. ft. were recorded in the territory in 2011. 229 of these leases were executed in the first half of 2011 with 189 having been transacted in the second half of the year, a retreat of 17.5%." Hong Kong Island saw a drop in new lease cases of over 27.7%. Nevertheless, some districts reported increases, as was the case in Tsim Sha Tsui where new leases increased by 38.1% in the second half of 2011. Gary Fok, Director, Commercial Transaction Services of Cushman & Wakefield (Hong Kong), said, "Given the high rent in Greater Central and a bleak economy, cases of expansion in and relocation to the district dropped in the second half of 2011. Moreover, availability rates of other districts in Hong Kong Island, such as Wan Chai / Causeway Bay and Island East, have declined to 2.4%, resulting in fewer transactions on Hong Kong Island and more in Tsim Sha Tsui, where rents have fallen behind other areas." Looking forward, Mr. Fok estimates that availability rates will range from 3% to 4% across all districts. Due to a lack of new projects with affordable rents to stimulate relocation activities, it is expected that the market will see fewer new lease cases and less leased floor space, which will amount to 50% to 60% of the amount in 2011. Average rents will fall by 5% to 10%, subject to location. Rents in Greater Central are expected to experience a decrease of 15%. If the global economy further deteriorates, rents are likely to fall by an additional 5% to 10%.
International brands flock to Hong Kong, resilient demand for prime street locations
According to data provided by the Hong Kong Tourism Board, Hong Kong visitor arrivals reached 41.92 million last year, whereas Chinese mainland visitors accounted for 28.10 million arrivals. Gross retail sales amounted to HK$400 billion, indicating a very strong market. Michele Woo, Senior Director, Retail Transaction Services of Cushman & Wakefield (Hong Kong), said, "The local economic foundation remains solid and Mainland visitors are flocking to Hong Kong for luxury goods, and therefore it is anticipated that the retail market will continue to expand in 2012, while brands impacted by the European sovereign debt crisis will also establish a footprint in Hong Kong. Renowned international retailers will be in fierce competition for favourable locations in key retail areas. Landlords will soon begin to negotiate with tenants on leases expiring in the second half of 2012 and stand to benefit from the large increase in rents since 2009. As compared to 2011, prime street locations and other slightly less prime locations will see rents rise by 25% to 35% and 15% to 20%, respectively. Recent notable large-scale transactions include the leasing of the ground and first floors in Asia Standard Tower by LAB, owned by Lane Crawford. The monthly rent amounts to HK$3.5 million and the previous tenant was Chinese Arts & Crafts."
F&B outlets active thanks to Chinese mainland visitors
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