Hong Kong CBD office market unexpectedly sizzles

Analysts were surprised of the high activity.

Barclays' 4th annual Barclays Asia Financials and Property Conference recently concluded, and one of the key messages that stood out to the group is that the Hong Kong CBD office market is really picking up steam and is likely to surprise on the upside.

According to a research note from Barclays, in its small group meeting with property consultant Savills, they noted that the market had been unexpectedly active since April.

Through a combination of events, Citibank Plaza has signed four significant leases which has helped to bring its vacancy down from some 22% to only 9.5%.

With another potential offer out, there is a chance that Citibank Plaza’s vacancy could fall to below 7%.

Here's more from Barclays:

While some of these are relocations from other buildings, with Citibank Plaza’s available space now soaked up, this should remove a significant bargaining chip from tenants looking to renew leases at lower rents.

This should benefit other CBD office landlords like Swire’s Pacific Place and also Hongkong Land’s portfolio.

In the broader market, although legal firms and retailers continue to reduce their office space, as they have traditionally not been large occupiers, their reduced footprint should not have a big impact on the market.

Looking out, Savills noted that in the year 2017/18, there may be more significant supply coming on line in the form of Sunning Plaza, and Somerset House as well as some of the new offices in Qianhai.

But until then, with tight office supply, Savills think there is scope for office rents to surprise on the upside. Separately, developers also reported an increased number of enquiries from Mainland Chinese institutions for large en bloc assets.

While it is still early days, should these investments materialise in 2H 2015, this could further boost the case for the office market.