Robust office leasing activity in Hong Kong

KUALA LUMPUR: Demand for office space is on the rise as vacancies in core districts in Hong Kong start to drop. Rents are also showing a rise in September following narrowing rental declines for three consecutive months, according to Knight Frank in its Hong Kong Prime Office monthly report for October 2009.

Signs have indicated that the office leasing downturn was over by 3Q2009. Knight Frank said if this is correct, the entire rental correction lasted five quarters and had a total magnitude of 41.6% and believes that Grade A offices rents will continue to stabilise and may see a rebound of up to 10% by mid-2010 as the global economy continues to recover.

September 2009 saw the first increase in Grade A office average rent in 15 months, registering an 1.5% increase month-on-month. The market was led by Kowloon East, which recorded a rental growth of 6%, followed by 2.6% in Admiralty and 1.9% in Tsim Sha Tsui. Rents in other districts remained stable, except for Causeway Bay, which continues its downward trend as it waits for full absorption of the office space recently vacated by a large financial institution.

Central’s premium office building saw a significant reduction in vacancies in September. The Cheung Kong Center, Exchange Square and International Finance Centre have limited vacant spaces left after better-than-expected absorptions over the past few months.

Among Central’s notable leasing deals are an investment bank with a floor space of 90,000 sq ft spread over 4½ floors in Cheung Kong Center, 11,000 sq ft in Three Exchange Square taken up by South Korean investment fund Mirae Asset and an entire floor of 8,300 sq ft in York House by a local developer. Leasing deals due to be concluded are 25,000 sq ft in Central’s Edinburgh Tower and in Kowloon East, an international insurance company is reportedly looking for 100,000 sq ft of office space in the district.

On the office sales front, activity has subsided in September after a rebound of 55% in capital values over the past seven months. According to the Land Registry, September registered about 260 transactions, a decrease of 16% from the previous month. The substantial increase in asking prices has attributed to the drop in sales activity, said Knight Frank.

Despite the drop in sales, some large-scale transactions were concluded in September. Nexxus Building in Central was bought by a Chinese Vietnamese investor for HK$3.2 billion (RM1.4 billion) or HK$13,846 per sq ft and four high floors in the Grand Millennium Plaza in Sheung Wan were transacted for HK$593 million (HK$9,600 psf). Macquarie launched the strata-titled sales for Grand Millennium Plaza about two months ago and all units have been sold by Oct 21, 2009.

However, the price rebound continued in spite of the decreased sales activity with the average Grade A offices showing a growth of 4.9% month-on-month in September, noted Knight Frank. The largest growth recorded among all the business districts is Sheung Wan, registering a surge of 8.4% in price; this is mainly due to the frenzied sales of Cosco Tower and Grand Millennium Plaza. Central saw a 5.8% increase, followed by Wan Chai with 5% growth.

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