Central office market outperforms overall market in 3Q15

Through comparing occupancy movement and rental change.

With the third quarter of the year over, some key highlights from leasing agents’ reports include factors that highlight the performance of the Central office market.

According to a research note from Barclays, reports include the following: CBD vacancy compressed another 0.7ppt q/q to 1.0% in 3Q15, and CBD office rent increased 3.6% q/q, putting the YTD gain at 12.2%.

By the metrics of occupancy improvement and rental change, the Central office market outperformed the overall market on both indicators, said Barclays.

Here's more from Barclays:

Looking into the next 12 months, we believe the office market should see stable performance, underpinned by low vacancy. We prefer Hongkong Land, Swire Properties and Cheung Kong Property (all rated OW) as beneficiaries of the continued CBD recovery.

Central office vacancy compressed another 0.7ppt q/q in 3Q: CBRE estimates that occupancy of Grade A offices in Central improved 0.7ppt in 3Q15, which puts the end-3Q15 vacancy rate at only 1.0%. Although the compression of 0.7ppt in 3Q15 was smaller than the 1.9ppt compression seen in 2Q15, the net take-up was positive despite moderating q/q. In terms of YTD performance, Central vacancy declined 3.0ppt from 4.0% at end-2014 to 1.0% in 3Q15.

Central rent increased 3.6% in 3Q15: The theme of tight vacancy persisted throughout the past quarter. As a result, rents grew 3.6% in 3Q15, according to CBRE. Although 3Q’s gain moderated from 2Q’s 6.2% q/q increase, it was positive and puts Central’s YTD rent increase at 12.2%.

Central continued to lead the overall market: For the overall market, vacancy compressed 0.4ppt q/q, from 3.6% in 2Q15 to 3.2% in 3Q15, while overall rents grew 3.2% q/q. Year-to-date, overall rent has increased 7.7% while vacancy has declined 0.9ppt. This suggests continued outperformance by Central.