Mainland Chinese companies most active group in Hong Kong’s flagging office rental market, Knight Frank report says

The vacancy rate in grade A office buildings rose to a record 12.2 per cent in the first three months of the year, according to a Knight Frank report on Monday
The premium office space market continued to face ‘weak demand amid economic uncertainty,’ says the property consultancy

Hong Kong property

Cheryl Arcibal

Published: 8:30am, 1 May 2024

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Mainland Chinese companies were more active than any other group in Hong Kong’s office leasing market in March, favouring space in the city’s newest prime office towers, analysts said.

However, their appetite for premium space was not enough to stem a steady increase in the vacancy rate as more office premises came online and overall demand shrank.

The vacancy rate in the city’s grade A office buildings rose to a record 12.2 per cent in the first three months of the year, a 0.7 percentage point increase from the previous quarter, according to a Knight Frank report on Monday.

“The Hong Kong Island grade A office market continued to face weak demand amid economic uncertainty,” the report said.

Vacancy estimates vary considerably from agency to agency. Colliers, for example, said the vacancy rate in Hong Kong’s prime office space hit a record of 15.1 per cent towards the end of August of last year.

New buildings have made more office space available in the city. For example, Six Pacific Place, with 218,000 sq ft of gross floor area in Wan Chai, and the 27-storey Viva Place covering about 300,000 sq ft in Wong Chuk Hang came on the market between January and March, according to JLL.

Among mainland Chinese companies that leased new office space in the span were Beijing-headquartered medical equipment supplier Golden MediTech, which moved from the Bank of China Tower to a 6,000 sq ft space in The Henderson, according to Knight Frank. Carmaker Brilliance China Automotive Holdings also moved into The Henderson, leasing 6,300 sq ft of floor space.

“Most mainland Chinese companies are looking for spaces of about 6,000 sq ft so they will not be enough to significantly bring down vacancy rates,” said Martin Wong, senior director and head of research and consultancy for Greater China at Knight Frank.

Grade A office rents fell 2.7 per cent quarter on quarter, according to JLL.

“Higher quality space will remain the focus of occupiers,” said Cathie Chung, senior director of research at JLL in Hong Kong. “The office leasing demand was mainly driven by consolidation and upgrading activities in the first quarter of 2024.”

Although there have been a number of large leasing transactions in the past few months, Chung said office rents are likely to decline between 5 per cent and 10 per cent this year.

Prudential Insurance leased an entire floor measuring 53,600 sq ft in Airside, the mixed-use development by Nan Fung group in Kai Tak that includes a grade A office tower and a 700,000 sq ft retail complex, according to market sources. Singaporean bank OCBC leased 54,800 sq ft in the same building, according to Cushman & Wakefield.

Other leasing activities in the quarter included the Hong Kong Monetary Authority signing up for three full floors with a gross area of 79,200 sq ft in the city’s tallest tower, the International Commerce Centre in Tsim Sha Tsui, and the Hong Kong University of Science and Technology leasing two floors for a total area of 29,700 sq ft in The Millennity Tower 1 in East Kowloon, Cushman said.

Asia Infrastructure Solutions, an engineering firm, leased 40,400 sq ft on two floors in Two Harbour Square in Kowloon East, Cushman added.