CBD office rents ticks up by 3.1% per quarter

And a further 18% decline is lurking.

It has been noted that although the office landlords’ valuations are less depressed than those of the developers and retail landlords, their expectation gap is actually the widest.

According to a research note from Barclays, the current stock prices of HKL and Swire Prop. are suggesting an 18% decline in office rents. But in the first three quarters of 2015, CBD office rents have actually risen by 3.1% on average each quarter.

The CBD office market is the only one where the incoming data points have remained positive. Although this should theoretically be positive, ever since this past summer’s correction in Chinese equities started, the market had been worried that this could derail the recovery of the Central office market.

Here's more from Barclays:

The CBD office market is the only one where the incoming data points have remained positive. Although this should theoretically be positive, ever since this past summer’s correction in Chinese equities started, the market had been worried that this could derail the recovery of the Central office market.

This concern had led to a 12ppt widening of Hongkong Land and Swire Properties’ discount to NAV from their historical average and they are also trading 22% lower in terms of their average price-to-book ratio.

Combining the two measures, we believe office landlords are implying an 18% decline in their asset value. Despite the continued concerns, CBD office rents have continued to rise 3.6% in 3Q and vacancy has further tightened to 1.0%.

Furthermore, the latest interim management statements from Hongkong Land and Swire have pointed to steady improvements. For the expectation gap to close, CBD office rentals would have to fall an average of 4.7% in each of the upcoming quarters (i.e. -18% y/y).