Grade A office leasing stalls amidst economic woes

This exerts pressure on landlords to offer generous incentives. 

Demands for Hong Kong Island’s Grade A office leasing remained stagnant due to the prevailing economic uncertainty in June, forcing landlords to offer generous incentives to attract tenants.

However, new letting cases dominated the leasing market, with most of the leasing activity happening in Central from professionals and financial companies, Knight Frank's latest Hong Kong Monthly Report revealed.

Looking ahead, approximately 930,000 sq ft of Grade A office space, mainly in Central and Causeway Bay, is expected to be completed by 2025. New leasing in this sector will likely be driven by upgrades and relocation demand as more office space becomes available.

On the other hand, Kowloon saw a significant slowdown in activity due to economic uncertainty and the start of the summer holiday period. Unlike Hong Kong Island, renewal cases dominated over new lettings. 

The slowdown in new lettings, coupled with rising rents and decreased occupancy in new buildings, has made relocation decisions more challenging. To attract tenants, some landlords are offering financial incentives and capex subsidies, including flexible leasing packages and fit-outs.

The dominance of renewal and upgrade-driven relocation cases suggests a degree of stability, with activity levels and rents in Kowloon’s office market expected to remain relatively stable in the second half of 2024.