Prestige MLS is glad to present you the first of our series of articles on the Hong Kong Real Estate Market thanks to the collaboration with JLL – Jones Lang LaSalle. Let’s start with an overview of Hong Kong vacancy rates.
Hong Kong is currently one of the world’s most attractive locations for business. Many leading global firms are choosing to rent office space in Hong Kong because of the area’s economic freedom, stability, strategic position next to Mainland China, favourable taxes, and more.
Many leading global firms are choosing to rent office space in Hong Kong because of the area’s economic freedom, stability, strategic position next to Mainland China, favourable taxes, and more
Because of this, it is natural to assume that office space is hard to come by, and consequently the vacancy rate must be low. Nevertheless, this article will evaluate Hong Kong’s vacancy rate in greater depth. Thus, continue reading to find out more…
Vacancy rates actually rose at the end of last year when compared with the same quarter in 2012. According to a JLL’s report, the increase was of 0.77 per cent, taking the total office vacancies to 3.8 per cent. In fact, the office market in Hong Kong has experienced weak leasing activity throughout both 2012 and 2013. This has consequently led to a fall in rental prices. There was a significant rise in vacancies rates in relation to Grade A office rents in Kowloon and Hong Kong Island, marking a 1.3 per cent fall in overall rents when compared with the previous quarter. This aptly signifies that businesses were generally seeking more economical solutions in non-core areas.
Hong Kong Down Town Center
The decreasing importance of prime office space can be attributed to several factors. Small and medium sized businesses are likely to be more vulnerable to economic factors, such as signs of additional growth slowing in China and the unresolved Euro crises. Consequently, SMEs have searched for office space in non-core central districts in order to benefit from more affordable solutions. Nonetheless, there has only been a slight drop in the overall rents of Grade A office space, and this is because large firms still prefer to have their head offices and alike in prestigious locations. In regards to core-central and business districts’ absorption, large firms in the banking, finance and law industries tend to be responsible for most of this.
Looking towards the future, with regards to the first quarter of 2014, one can already observe slight changes. There is still the demand for offices in non-core areas in order to cut costs. Nonetheless, demand in Central and Admiralty has started to improve since the last quarter, with a drop of 0.8 per cent in vacancy rates for Q1 of this year. This is also the case when it comes to other districts, such as Kowloon East, Island East, Causeway Bay and Wan Chai. The overall vacancy rate has dropped. As mentioned earlier, this rate has been rising over the past few years. However, in Q1 2014 the vacancy rate in Hong Kong fell to 5.6 per cent from 6.1 per cent on a quarterly basis. It is worth noting that there has been an improved demand for office space from the financial sector, including multi-national corporations, IPOs and Mainland companies, and this is one of the main reasons why vacancy rates are falling.
To conclude, over the past few years there have been increasing vacancy rates in Hong Kong. One notable trend was a move to more economical offices in non-core areas. However, we are already starting to see improvements in relation to the vacancy rate in Hong Kong for 2014. It is likely that the market for office space will get more stable as the year progresses.
Jones Lang LaSalle is a global real estate services firm specializing in commercial property management, office rental/leasing, and investment management.
