- Overall rents in Grade A offices fell in October in biggest month-on-month decline since July 2009, according to JLL
- Clients are in no mood to talk about office leases as prospects cancel meetings due to street protests, Knight Frank says
More than five months of social unrest in Hong Kong is starting to hurt prime office landlords with rent falling by the most in a decade as multinationals downsized and mainland Chinese firms retreated from the city.
Overall rents in Grade A offices fell 1.6 per cent to HK$74.30 (US$9.50) per square foot in October from a month earlier, according to property consultants JLL, the biggest monthly decline since August 2009. Among five major business districts in the city, the slide was most pronounced in Central where rents fell by 2.3 per cent to HK$122.10 per square foot last month.
The slump offers yet another snapshot of Hong Kong's economic recession brought on by escalating violence among anti-government radicals in recent weeks, adding to official data showing declines in retail sales, tourist arrivals and exports. Co-working space operator WeWork is trimming its presence and headcount, while State Street Asia is giving up some of its space in the city.
"Lots of companies are exploring ways of downsizing to save cost in the past two months," said Wendy Lau, senior director of Hong Kong office services at Knight Frank. "The leasing market had almost come to a standstill in the past couple of weeks."
Hong Kong's prime office market wobbles as Chinese firms scale back
An additional 188,500 square feet of prime office space in the city became vacant in October, causing a third straight month of rising vacancy, according to JLL. The office market has been wobbling since the outbreak of street protests in June as vandals targeted Chinese bank branches and retail outlets suspected to be linked to mainland business groups. That is chilling the interest from mainland Chinese companies, who have fuelled the local market in recent years by outpricing rivals for some of Hong Kong's prestigious offices.
"Clients are in no mood to talk about office leases," Lau said. "We had several meetings that got cancelled as protesters clashed with police this week."
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State Street is subletting 7,000 square feet on the 70th floor space at IFC Two to Jeneration Capital for HK$170 per square foot for two years, according to industry sources. The US financial services group, which is occupying two floors in the tower, declined to comment when contacted by the South China Morning Post.
At The Center, Hong Kong's most expensive office tower, Midland IC&I is offering 13 subdivided lots on the 21st floor for an average monthly rent of HK$70 per square foot on behalf of a landlord.
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"The asking price is still negotiable," according to Doris Siu, a senior director at Midland. The offer is already at the low end of the HK$68 to HK$100 range from recent transactions, she said. Overall office rents have dropped by 10 to 15 per cent so far this year as mainland Chinese enterprises disappeared from the scene in the past two months, she added.
Some property consultants are bracing for more pressure as tenants seek concessions from landlords, a trend that is typically restricted to retail or residential market.
"In the last week, we have had five clients reaching out to negotiate rental concessions and additional incentives midterm to combat the turmoil," said Chris Currie, head of Hong Kong office services at Colliers International. "This could be a trend that gathers pace if the situation continues."
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