COMMERCIAL PROPERTY | Staff Reporter, Hong Kong

Limited office availability caps leasing activities in 3Q

Though office spot rent increased.

It has been noted that HK office spot rent rose 1.2% QoQ in 3Q (up 3.5% YTD), while cap rate was largely stable QoQ.

According to a research note from Bank of America Merrill Lynch, the solid 2.2% gain QoQ (up 7.2% YTD) in Central was in line with its estimate of 5-10% rise in FY16.

Yet, limited office availability continued to cap leasing activities and the net take-up remained negative in 3Q, also affected by the tenant relocation at Warwick and Cornwell House in Quarry Bay.

Rents in decentralized districts such as Tsimshatsui and Kowloon East fell 1.3% QoQ and 0.3% QoQ, respectively.

Here's more from Bank of America Merrill Lynch:

While Central office spot rent is likely to continue its modest growth in 4Q in view of the tight vacancy, our channel checks suggest that PRC demand has cooled slightly.

More Central tenants are considering cheaper alternatives outside Central, eg, a French bank will reportedly surrender 88k sqf of space at Three Exchange Square to move its back-office operations to Taikoo Place.

A US bank will surrender three floors at 3 Garden Road, and a Japanese bank will move to New World Centre in Tsimshatsui.

Landlords seem more willing to offer rent concessions (that are not necessarily reflected in open market rates) in order to retain large tenants. We therefore maintain our estimate of a 5% drop in Central office spot rent in 2017, but concede that rents could hold up in 1H17 before new CBD-alternative supply arrives in 2H17 and 2018.

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