Office rental volumes down in Q4

Vendors were hesitant to accept discounted asking prices.

The subdued investment sentiment resulted in yet another quiet quarter for commercial transactions.

Grade-A office spaces registered an extremely low volume in both Hong Kong Island and Kowloon on the back of vendors’’ hesitance to slash asking prices, said a Savills report.

A number of veteran investors and local families looking for distressed assets request a 10% to 15% discount to market, but very few vendors were willing to accept such pricing, noted Savills.

The most significant transaction was the sale of 20/F of Enterprise Square One for $305m, representing a 10% discount to the original asking price of $350m paid in August 2019.

The decentralized office market, Kowloon East in particular, has seen a number of newly completed Grade-A offices being stratified over the past few years in One Harbour Square, YHC Centre, and TG Place amongst others. This has resulted in the current large amount of office stock on the market, noted the report.

Similarly, very few of these strata-title landlords were willing to lower asking prices, leading to a stagnant sales market over the past few months and a further 1.5% drop in prices in Q4 2019, stated the report.

Transactions did come through for small Grade A office units in both Admiralty and Sheung Wan at 10% to 15% discounts, dragging Central prices down by 8% in Q4 2019 as a result. Meanwhile, there were no significant deals concluded on Hong Kong Island towards the end of last year.

Savills sights that the short-term dip in office supply in 2020 and 2021 may provide some breathing space for landlords both in the sales and leasing markets.

Against a backdrop of extremely low volumes, Savills expects Grade A office prices to decline alongside office rents in the order of 10% to 15% in 2020.