Office rents may remain under pressure despite falling vacancies

New supply in H2 could delay a recovery in rental rates, said CreditSights.

Hong Kong office rents may remain under pressure despite declining vacancy rates, as new office supply expected in the second half (H2) could slow the market's recovery, according to CreditSights.

The firm said office vacancy rates have generally declined since the beginning of the year, partly supported by stronger activity in the city's capital markets.

The government's push to expand Hong Kong's role as a global offshore renminbi hub could also support the sector, it added.

However, CreditSights cautioned that the influx of new office supply in H2 could prolong rental pressure, as landlords continue offering flexible leasing terms to attract tenants. 

The weaker office market has already affected landlords' revenue, with negative rental reversions continuing to weigh on their performance, it added.

Retail properties have performed better, supported by an 8.5% year-on-year increase in retail sales during the first eight months of the year.

CreditSights attributed the growth primarily to luxury goods, whilst tourism initiatives, major events, and the revamped Hong Kong International Airport Terminal 2 could support further retail activity.

“We still anticipate retail sales growth to still largely be volume-driven, especially if the spending by Mainland Chinese visitors remains tepid,” it said.

Looking ahead, the firm expects mixed revenue performance amongst the city’s landlords in H2, with office rental pressure remaining a common challenge.