World’s costliest offices are poised to enter tenants’ market as Hong Kong businesses reel from coronavirus, protest movement

Hong Kong’s notoriously pricey office rental sector is fast becoming a tenants’ market as last year’s protest movement and the current coronavirus pandemic have prompted struggling companies to bail on their leases.

A huge increase in firms, from co-working space providers to finance companies and retailers, abandoning their offices before the contracts expire has helped free up space and contributed to a fall in rental rates.

“Given that real estate is one of the single largest costs in operating a business, particularly in Hong Kong, lease surrender cases are becoming more prevalent as a means to generate savings,” said Chris Cohen, a data analyst at Savvi, a Hong Kong-based data-driven real estate platform founded in 2018 that specialises in office, off-market and lease surrender opportunities.

Office rents across the city have been falling hard this year, with vacancy rates in areas such as Admiralty and Central soaring as the health crisis further saps demand already dented by months of social unrest. Many analysts see the situation worsening this year.

Companies that surrender space have typically overextended themselves through expansion or “are currently paying market-peak rentals in what is one of the world’s most expensive office markets,” said Cohen.

Firms that gave up office space this year were predominantly mainland Chinese ones and those whose businesses were hit particularly hard by the virus and last year’s social unrest, such as retailers, according to Wendy Lau, senior director of Hong Kong office services at Knight Frank.

Sometimes the rental contract can be broken legally if tenant and landlord reach an agreement on terms, which might include compensation.