Leasing demand for Grade A office down 23% in Q2

Limited inspection activity caused the decline in leasing demand.

Gross leasing activity for Grade A offices went down by 23% quarter-on-quarter (QoQ) in the second quarter to 855,700 square feet, according to real estate firm CBRE. 

In its Hong Kong Market Review for the first half (H1) of 2022, CBRE said that pre-commitments to upcoming office buildings accounted for 30% of the leasing volume.

Rents for Grade A offices also edged down by 0.3% QoQ in Q2 2022, following a 0.6% decrease in the previous quarter.

“Rents in Greater Central and Kowloon East remained stable and outperformed those in other major submarkets. Hong Kong East registered a rental drop of 1.5% QoQ, making it the weakest performer among all submarkets,” said CBRE.

Nevertheless, CBRE said it was the smallest QoQ decrease since the second quarter of 2019.

Net absorption for the office market was still positive at 185,400 square feet in H1 2022.

The vacancy rate in the office market inched up 0.3 percentage points to 11.9%, “the highest since the third quarter of 2003.”

It also pushed up the total volume of vacant space to a record-high 9.8 million square feet. Excluding Central, all major submarkets ended the quarter with double-digit vacancy rates.

Reacting to these figures, Ada Fung, executive director of CBRE, said the fifth wave of COVID-19 led to not only restricting inspection activities but also delayed the issuance of building permits.

“As the trend of downsizing and cost-saving continued, vacancy rates in all submarkets increased to double digits in Q2 except for Central, and the total vacant space in Hong Kong hit a record high,” said Fung.