Vacancy in Kowloon East Offices Drops to Below 10% for the First Time in 12 Months

HONG KONG, July 23, 2018 – Rents in the overall office market grew 0.9% m-o-m in June, bringing growth for the first half of 2018 up to 3.6%, according to the latest Property Market Monitor released by JLL.

Central led the way with rents growing by 1.4% m-o-m on the back of a 1.5% m-o-m increase in Grade A3 offices, followed by Tsimshatsui where rents advanced by 1.1% m-o-m as vacancy remained anchored below 2% for the third consecutive month. In Kowloon East, strong take-up helped push vacancy to below 10% for the first time in 12 months and rents grow by 0.2% m-o-m.

Despite a 63% m-o-m drop in new lettings, net take-up in the overall market amounted to 106,600 sq. ft. in June. In the most notable new letting, AIA leased about 100,000 sq. ft. at Hopewell Centre in Wanchai, relocating from AIA Building at Stubbs Road. The month also saw a couple of fintech firms expanding in the market, including Block One reportedly leasing 16,600 sq. ft. at The Centrium in Central while another fintech player was said to have leased 29,700 sq. ft. at Lee Garden One in Causeway Bay.

In the investment market, PRC-backed Henglilong Investments' acquisition of Cityplaza Three and Cityplaza Four from Swire Properties at HK$15 billion set a new record high for the Hong Kong East office market, in terms of total consideration. Concurrently, investment activity in the industrial market is heating up, with several en-bloc properties sold during the month, including the sale of Lot 46—formerly Nan Sing Industrial Building before being revitalised into an office building—in Kwai Chung to mainland developer Aoyuan Property Group for HK$950 million.

Paul Yien, Regional Director of Markets at JLL, says: "New economy players are fueling the boom in Hong Kong's office market. Fintech companies, in particular, have been active tenant in recent months. In signs of how scare office space has become in Central, these firms are keen to explore and extend their office footprint beyond Central and into other non-core business districts, such as Hong Kong East and Kowloon East, as they hunt for suitable premises. With vacancy in Central remaining tight, we expect this trend to continue over the next few quarters."

Denis Ma, Head of Research at JLL, adds: "The sale for Cityplaza Three and Four to Hengligong Investments is just the latest example of PRC investors buying en-bloc Grade A office buildings outside of Central. Their focus, however, remains on turnkey assets that have high visibility from both the Hong Kong Island and Kowloon shoreline. Looking ahead, this trend will only be limited by the availability of such assets though the aggressive prices being offered could sway more owners to part ways with their assets."