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HONG KONG (Nov 17): Office rents in Hong Kong's central business district have been softening and a sharper decline is expected as demand for space dries up as a result of the global economic turmoil.
"Hong Kong has begun to feel the effects of volatility in global markets. Multinational corporations have become more cautious in the face of global uncertainty and this has impacted on office demand," said Edward Farrelly, head of research for international property consultant CB Richard Ellis (CBRE) in Hong Kong.
Over the three months to September, overall rental growth slowed markedly to 1.2% quarter on quarter, according to CBRE, as financial firms became more cautious amid the poor global economic outlook — putting downward pressure on rents in Central in particular.
But on a month-on-month basis, average rents in Central were already down 1.09% in October compared with September and now stood at about HK$120.24 (RM48.68) per square foot, the property consultant said.
"Office rents in core Central, especially the top buildings such as the two IFC towers, will continue to fall as demand from the financial sector drops," said Simon Lo Wing-fai, executive director of research and advisory for Asia at international property consultant Colliers International.
Financial institutions such as HSBC, Bank of America, and Barclays have all announced plans to reduce staff worldwide.
"We believe the market has entered a downward cycle," said Lo, who now expects rents in Central to fall by 10% between now and the end of the third quarter next year. They are already down 3% from their peak in May.
"The market was very quiet at the end of the second quarter and in the third quarter," Lo said.
Landlords had begun cutting rents by a few percentage points and tenants were likely to negotiate steeper cuts in the coming months.
However, he thinks the slowdown in the financial sector is unlikely to deal a blow to the overall economy and says demand for office space from other sectors such as distribution and manufacturing continues to rise in locations such as East Kowloon.
According to CBRE, rents in Kowloon rose by 2.38% on average from September to October.
"We are now seeing occupiers actively looking at options to keep costs under control and this is putting more pressure on some landlords, particularly those with a higher degree of vacancy in their portfolio," said Farrelly. He said that in the current environment some companies were looking at their operations and deciding which people needed to be in Central and which could potentially be located in other areas.
For example, German shipping company Hamburg Sud, a tenant of IFC, had pre-leased a floor in Kwun Tong's Landmark East for HK$35 per square foot a month.
Earlier, international accounting firm KPMG announced it would relocate part of its offices to Causeway Bay, joining a growing number of companies such as Deutsche Bank and Ernst and Young that are choosing to be less dependent on Central and more cost-conscious.
"Interestingly, in the short term, while demand has been reduced due to economic uncertainly this is not the only factor. An upcoming increase in supply has also started to affect rents in Central," Farrelly said.
"However, the impact will be diluted by the fact this upcoming vacancy will continue to be distributed over multiple buildings." — SCMP
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