Grade A office rental growth hits 6.7% in 2018

However, the outlook into 2019 looks increasingly dim.

Hong Kong's office market shined in 2018 after rents accelerated to 6.7% yoy from 3.1% yoy in 2017 amidst expansion across all submarkets, according to a report from CBRE. However, further softness in Mainland Chinese leasing demand over the next 12 months that extends a weakening in the second half of 2018 is set to weigh on the market.

Mainland Chinese companies accounted for nearly a quarter of new leases in core locations in 2018. However, ongoing trade disputes, capital controls and a falling yuan currency will likely take a toll on Mainland Chinese firms' financial capability in 2019, said Alan Lok, Executive Director, Advisory & Transaction Services - Office, CBRE Hong Kong.

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Net absorption reached 3.0 million sq. ft. In 2018, more than doubling from the prior year and marking the highest annual total since 2010. New office completions stood at 2.0 million sq. ft. in 2018 and were all located in non-core districts, of which approximately 81% has been leased.

Rents in Central, TST and Wanchai/Causeway Bay climbed 7.1%, 9.3% and 8.9% yoy, respectively for the full-year period. Meanwhile, Hong Kong East and Kowloon East rents were up by 11.0% and 6.7% yoy on the back of the decentralisation trend, which is expected to intensify in 2019.

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"The completion of seven new projects will inject 2.4 million sq. ft. of new office space in 2019. As 80% of this will be located in non-core districts, decentralisation will take center stage," said Lok.

He expects a "two-tier office market" to emerge in 2019 that will see rents in core districts dip by as much as 5%, while those in non-core districts will rise by up to 5%.