Hongkong Land's office vacancy rate drops to 1.4%

But it's still wary of the Central office outlook.

Compared with Hong Kong, Hongkong Land saw increasing leasing demand from various sectors in Singapore.

According to a research note from Barclays, management sees more opportunities than threats. The report noted that the vacancy is down from 2.5% at end-April to 1.4% at end-June.

Meanwhile, despite some 3mn sf of new supply to come in 2016, the average annual supply over the next five years is in line with that during the past five years.

The report also said that Hongkong Land remains cautious on the Central office outlook.

Here's more from Barclays:

In 1H 2014, HK Land saw a pick-up in office leasing enquiries from mainland Chinese companies looking for small space.

Rental revision remained largely positive in 1H. However, looking ahead, 2H 2014 will be more challenging given the high rents signed in 2H 2011.

The average expiring net rent is around HK$99psf with 9% of total area subject to expiration and rent revisions in 2H 2014.

Management expects some negative rental reversion in 2H 2014 but a less challenging market condition in 2015.

In addition, management highlighted that it will closely monitor the development of Shanghai-Hong Kong Stock Connect, which could underpin incremental office space demand in Central.

Leasing strategy – continue to focus on yield. At the end of June 2014, the Central office vacancy rate was 6.0%, slightly better than 6.2% at end-April 2014 but higher than 5.0% at the end of 2013.

Management suggested that their leasing strategy will continue to be focusing on yield as vacancy in Central is still tight.

Hongkong Land expects the market to continue to benefit from the limited new supply in Central over the next five years.

Cap rate remained unchanged: The cap rate used for the valuation of investment properties remained unchanged in 1H 2014.

The US$16mn revaluation gain for the Hong Kong portfolio and US$123mn gain for HK Land’s shares in associates were mainly from rental growth.

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