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HONG KONG: Rental growth of Grade A offices in Kowloon East, Hong Kong is expected to slowdown in the coming six months due to a more competitive market as more supply come onstream.
"With the more competitive supply market and a potential slowdown in demand, we foresee an adjustment in the Kowloon East Grade A office rental growth to a more prudent average of 8% in the second half of 2011," said general manager of office services Kowloon Fiona Ngan in a statement on Monday, Aug 1.
This is after Kowloon East's double digit growth in the first half of 2011 offering the largest amount of new Grade A office supply in Hong Kong, comprising over 5 million sq ft in new completions over the past five years.
Coupled with infrastructure development in the district, Kowloon East with its various brand new Grade A office developments had attracted a number of corporations — including MNCs to relocate their offices there.
"The solid occupational demand has fuelled rental growth in Kowloon East. In the first half of 2011, the average Grade A office rent surged 16% to HK$29 (RM11.04) psf per month in June 2011. This growth has subsequently reduced the rental gap between Kowloon East and Tsim Sha Tsui, which narrowed 18% from HK$17 psf in June 2008 to HK$14 psf in June 2011," says Colliers International Asia executive director of research and advisory Simon Lo.
In addition to the office projects under sizeable landlords' ownership, strata-title office owners make up a large percentage of the ownership mix, with a number of strata-title leasing stocks in the new office buildings such as C-Bons International Centre, MG Tower, Billion Centre, Legend Tower, etc in Kowloon East.
"The proportion of Kowloon East's Grade A office leasing stock under strata-title ownership increased from 26% in June 2010 to 31% in June 2011. In general, strata-title owners are the first ones to react in competitive situations by offering lower rents than those owned by portfolio landlords. With higher proportion of strata-title office owners, rental growth momentum will face substantial pressure," said Ngan.
Sales volume had edged down by 12% but the average office price in Kowloon East rose 11% from HK$5,166 psf in 2H 2010 to HK$5,712 psf in 1H 2011. In the next two years there will be 569,589 sq ft and 1,361,649 sq ft of new office buildings expected to be available for sale in Kowloon East in 2012 and 2013, respectively. Prices are expected to face slower growth.
"The end-user demand, seen shifting from lease to purchase, will continue, but likely at a slower pace," says Ngan. "Demand from investors is expected to taper off as banks adopt a more conservative mortgage strategy. However, with its promising future supported by the Kai Tak Redevelopment Project and subsequent rising rental, we will still see Grade A office prices in Kowloon East increasing between 5% and 7% in the remaining of 2011."
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