International brands, such as IWG and MUJI, are increasingly flocking to new areas.
Almost all, or 95%, of the leasing requirements/new lettings were filled outside of Central in June as tenants are focusing on cost-saving options, according to a JLL report. The latest figure is higher than the 73.7% recorded in June 2019.
Most of the tenants are looking for office space outside of Central against the backdrop of a weakening economy. For instance, IWG reportedly leased two office floors amounting to 32,900 sqft at Hysan Place in Causeway Bay to take over the spaces previously withdrawn by WeWork and open a new centre under the “Signature” brand. Meanwhile, Swarovski reportedly leased a whole floor at Citi Tower, One Bay East in Kwun Tong to relocate out of Hong Kong East.
The vacancy rate in Central rose to 5.6% in July as weak demand resulted in negative net absorption amounting to -136,500 sq ft. Aside from that, surrender space also has been rising in the submarket as it amounts to slightly above 460,000 sqft, making up about 35% of the surrender space in the overall market, the report added.
“Rental decline outside of Central sped up in June with the overall market declining by 2.4%MoM. The sharpest rental contraction occurred in Tsimshatsui and Kowloon East recording a 2.6% MoM and -2.7% MoM slide respectively as the rental gap with Central narrowed,” said Alex Barnes, head of markets at JLL Hong Kong.
In the retail market, a number of international retailers are looking to shut their flagship stores, including the Topshop, GAP and Adidas stores on Queen’s Road Central. Nonetheless, JLL stated that retail operators targeting the domestic market are still keen on expansion.
In addition, Outback Steakhouse reportedly leased the first floor (3,000 sqft) at Entertainment Building in Central for a monthly rent of $300,000 as they plan to run a new fast-food concept for the premise.Lifestyle retailer MUJI launched its largest flagship (24,000 sqft) at Telford Plaza in Kowloon Bay, with a focus on food items.
“International mass retail operators targeting local customers are more interested in expanding in Hong Kong as rental levels become more agreeable. We will likely see a more diverse retail environment in the medium to long term,” Nelson Wong, head of retail at JLL in Greater China stated.
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