Kowloon office rents to face downward pressure until end-2017

More leasing transactions will be concluded after the summer.

According to Knight Frank, in Hong Kong Island, numerous pre-lease transactions were recorded in July. Shared-office provider WeWork pre-leased 14 floors totaling 85,000 sq ft in LKF Tower in Central. The tower was previously Hotel LKF, but is being converted into an office building.

This will be WeWork’s third co-working centre in Hong Kong, with the other two located in Tower 535 in Causeway Bay and Asia Orient Tower in Wan Chai. Maybank pre-leased two floors in Lee Garden Three in Causeway Bay. In Quarry Bay, MetLife pre-leased a whole floor in One Taikoo Place.

Here's more from Knight Frank:

Looking ahead, the upcoming office supply on Hong Kong Island will provide more options for relocation from Central. Chinese firms, however, will continue to prefer Central and remain the key demand driver for offices in the CBD.

On the other hand, most leasing transactions in Kowloon involved relatively small units of around 4,000 sq ft in July, mainly in Kowloon East and Kowloon West. Tenants were mainly from the sourcing and IT industries.

With many major companies having moved their offices to Kowloon, small and medium-sized enterprises are following suit, as they prefer to stay close to their business partners. Meanwhile, amid increasing supply, landlords are more willing to offer incentives to attract potential tenants.

We maintain our previous view that Kowloon rents will continue to face downward pressure during the remainder of 2017. More leasing transactions will be concluded after the summer, however, before the market slows down again towards the year end.