Leasing demand 'soft' in Grade A office market

Large tenants downsized their premises.

Colliers International reported:

Leasing demand was soft in the city’s Grade A office market. In view of the uncertain economic outlook, individual large tenants downsized their premises but still preferred to stay in the same district.

The slowdown in leasing activity has been reflected in the market, with the overall net take-up falling 80% QoQ to 111,000 sq ft in 3Q 2012, mainly due to the drop in net-take up in Central / Admiralty.

Due to weaker demand for Grade A office premises amidst global financial turbulence during the quarter, net take-up slowed in all submarkets. Moreover, the limited stock available for lease in the marketplace during the quarter was another reason for the decline in net take-up.

In Central / Admiralty, occupied stock showed another contraction over three quarters, releasing 70,000 sq ft of Grade A office stock following a positive net take-up of 126,000 sq ft in 2Q 2012.

Although demand has softened for top-tier buildings in Central, leasing enquiries from small to medium-size companies with areas between 2,000 and 6,000 sq ft, picked up.

In contrast, positive net-take up was seen in the Wanchai / Causeway Bay, Island East, Tsim Sha Tsui and Kowloon East areas.

Companies such as hedge funds, recruitment firms and legal firms were the key source of demand on Hong Kong Island. Newcomers were mainly finance-related companies who looked for office premises with areas of about 3,000 sq ft.

Meanwhile, legal firms were still expanding in Central but the pace has slowed in 3Q 2012 compared to the previous two quarters. In Tsim Sha Tsui and Kowloon East, tenant demand came from relocation and consolidation as well as upgrading.

Among different tenants, sourcing and insurance companies were the main drivers for the uptake of Grade A office space in 3Q 2012, requiring office units with large floor plate size in general.