5.7 million sq. ft. of potential space for lease by end of 2016

Where's the source of the dominant volume?

In view of the robust demand derived from the positive growth momentum of corporations in Hong Kong and a substantial shortage of Grade A office supply in the secondary market, occupiers are facing keen competition to secure office space.

According to a research note from CBRE Research, it explores hidden office leasing opportunities available for Hong Kong occupiers, with the study of potential office spaces scheduled to be available in the next two years.

The note said that an aggregate of 5.7 million sq. ft. of space has been identified in Hong Kong, with the dominant volume of space located in Kowloon East.

Here's more from CBRE:

Overall vacancy stands at 3.7%. Popular hubs such as Hong Kong East and Greater Tsim Sha Tsui have lower vacancy of 2.1% and 1.9% respectively, subsequently strengthening landlords’ bargaining power

There are approximate 2,200 occupiers in Hong Kong’s Grade A Office market with lease terms ending before the end of 2016 (excluding those opting to vacate their space), taking up 20% of the current space

Options for occupiers choosing to relocate rather than renew leases include leasing immediately available space, leasing space in new supply, leasing upcoming secondary space. Companies can also consider purchasing self-use office space.

Kowloon East is providing 850,000 sq. ft. (NFA) of immediately available office space as at the end of May 2015, mostly belonging to strata-titled buildings which owners have higher tendency to sell than to lease

CBRE estimates a supply of 3.9 million sq. ft. from newly completed buildings by 2016. Half of the space is provided by Kowloon East’s new projects, although two-thirds of the new supply has already been allocated for self-use, for sale or pre-sold.

Large tenants will be challenged to lock in the right space until 2017/2018 when larger-scale projects come to completion.

Marcos Chan, Head of Research for CBRE Hong Kong, Macau and Taiwan, commented: “Hong Kong is a landlord market from the perspective of occupiers in view of the continued low vacancy rate of Grade A Office and the limited new supply in the short term.

Other than lease renewal with substantially increased rental expense, alternatives for occupiers are available in decentralized areas.

CBRE advises occupiers to plan and make decisions well ahead of lease expiry. Pre-leasing potentially available spaces will be beneficial to their business operations. Among major office markets, Kowloon East is in the spotlight.

It is a major contributor of office supply both for short and mid-to-long term. We foresee more occupiers will be driven to consider decentralized areas like Kowloon East in pursuit of cost efficiency and higher quality facilities.”