Office sector rent edges up 2.3% in H1

Demand was mainly cost-driven.

In Hong Kong's office sector, it has been noted that overall average rent increased by 2.3% in 1H 2016. Rents edged down mildly by 0.1% in Q2, the first quarterly decline since Q2 2014.

According to a research note from CBRE, demand was mainly cost-driven and most large transactions took place outside of the core areas.

Further, overall net absorption turned negative in Q2 2016 (-310k sq. ft.) as some large secondary spaces became available in decentralized areas, making it the worst quarter since Q1 2009.

Overall vacancy increased from Q1's 3.5% to 4.2%, the highest level since Q1 2015. Yet vacancies in Greater Central (Central, Admiralty and Sheung Wan) remained low at 1.6%.

Mainland Chinese firms also continued to commit space in Central, accounting for 37% of the newly leased space in the district.

Here's more from CBRE:

2016 2H outlook: Occupier activity will continue to be cost-driven. MNCs will remain cautious, while leasing demand is expected to be driven by PRC firms.

Space availability will improve in light of a rebound in office vacancy, providing more options for tenants. However, contiguous floors in Central CBD will still be limited.
More pre-leasing activity will take place for projects to be completed in 2017.

The rental growth cycle will be coming to an end. Rents will remain broadly stable in the second half of 2016.