Hong Kong firms mull downsizing office space to save bottomlines

Companies with more than 500 staff are most likely to consider reducing space.

Hong Kong’s commercial property sector face rising empty spaces in the future as firms in the city anticipating smaller space needs over the next three years, a survey by Cushman & Wakefield found.

More than half of respondents (56%) have changed their leasing strategies as they shifted their focus on cost savings in an effort to save their bottomlines, noted Cushman & Wakefield’s study—which surveyed more than 70 key occupiers in the city from June to July.

Nearly a third of respondents, or 31%, said that they have put on hold plans to either expand, relocate, or refurbish their space — all suggesting a wait-and-see approach as the timing of any recovery remains uncertain, according to Cushman & Wakefiled.

However, it is evident that for some firms the pandemic has taken a bigger toll following a challenging H2 2019, with around 20% planning to consolidate or surrender space.

The new view comes as the pandemic spurred long-lasting implications in the way companies work and how occupiers consider their space needs. Majority of respondents (65%) expressed openness to adopt some level of work-from-home arrangement in a long-term basis.

“Whilst many firms in recent years have already invested in technologies to allow more agile working, the pandemic is further fueling the trend to support working remotely,” the report noted.

In total, 70% of firms plan to increase investment in technologies to support seamless remote working.

Another 27% indicated preferences for buildings with higher safety and well-being standards, whilst 21% will reconfigure their office space to allow for more social distancing.

Less space needed
Whilst the percentage of those indicating the size of their occupied space would remain unchanged over the next three years remained relatively unchanged, there was a sharp decrease in those firms previously considering expansions.

It corresponded with a rising number of firms considering downsizing. The number of firms considering reducing their space in coming years jumped from 17% before the pandemic to 35% as of mid-year.

Larger firms are the most likely to downsize, with 90% companies having more than 500 staff reporting that they plan to reduce their office space.

“Even before COVID-19, larger firms with more than 500 staff were more likely to be contemplating a reduction of their office space needs. However, it is clear the pandemic has accelerated that trend, with nearly 90% of such companies reporting that as of mid-year, they plan to reduce their office space,” the report added.

On the upsides, firms are likely to stay in Hong Kong, with only 1% is considering moving out or relocating outside the city.

Overall, 85% of companies indicated that the pandemic impacted their businesses negatively.

The retail sector is amongst the most pessimistic, with firms in the industry expecting recovery by H2 2021 at the earliest.

In contrast, 43% of businesses overall expect recovery to occur on H1 2021; 13% in H2 this year; and 21% in H2 2021.

Almost one in 10 firms, or 9% of respondents, expect recovery to occur in 2022 and beyond.

“The near-term impacts of COVID-19 on businesses have been undeniable as many have moved quickly to preserve capital. At the same time, however, it is presenting opportunities for those with a longer-term view to reposition  their portfolios in anticipation of a possible rebound next year,” said Reed Hatcher, director, head of research, Cushman & Wakefield Hong Kong.