Office rent-rise view challenged

HONG KONG: The consensus that Hong Kong office rentals will grow strongly this year has been challenged by serviced-office provider Compass Offices, which says grade-A office rents in Central may fall by as much as 35% over the course of the year.

Andrew Chung, founder of Compass, said the decline in rentals would be driven by major new supply coming onto the market.

"This is contrary to reports by all the major property consultants, who have predicted rent rises of between 20 and 35% this year," he said.

Among the latest to make such bullish forecasts was property consultancy DTZ that said last week it expected rentals for grade-A office space in Central and Admiralty to rise by as much as 20% this year due to the buoyant market outlook and strong business demand.

But Chung, who offered the use of offices on short leases, said confident expectations of further big rises in office rents overlooked the impact of new supply coming onto the market towards the end of this year.

At the previous market peak for the sector in 2008, he said, monthly rentals in top-end office buildings, which included IFC and Cheung Kong Centre, surged to some HK$150 to HK$200 (RM58.86 to RM78.48) per sq ft before falling to around HK$65 to HK$80 per sq ft at the lows of 2009 and more recently bouncing back to current levels of between HK$150-HK$160 per sq ft, he said.

Other Central grade-A rentals had performed similarly. This year vacancy rates will be driven by huge new supply coming on stream in Central, he said, including the completion of the Luk Hoi Tong Building redevelopment, which will comprise a 28-storey mixed office and retail tower with a gross floor area of 226,044 sq ft; and 50 Connaught Road, comprising about 150,000 sq ft gross floor area.

"Who is going to fill this space? Chung asked. Most large Western banks had already signed up for new premises this year and it was likely landlords would be looking to mainland firms to fill the spaces because "they are fast decision-makers and do not negotiate hard on rents".

US law firms were also opening here to take advantage of growth in Asia, Chung said. — SCMP