Tenant decentralisation to be driven by MTR South Island Line opening

The appeal of Hong Kong East as an office location will continue to grow.

The pressure on vacancy and rents in the top end of the Central market will continue to support relocation to lower cost districts, according to research in JLL’s latest Monthly Market Monitor released today.

The office leasing market was relatively subdued in December ahead of the year-end holiday season. With availability in traditional core area markets remaining tight, leasing activity was largely focused in non-core office areas such as Quarry Bay. Activity was mainly underpinned by relocation and consolidation requirements, with net take-up amounting to 140,500 sq ft for the month.

In Central, several whole floor lease expiries contributed to a net withdrawal of 49,800 sq ft, the largest monthly contraction in the past two years. Still, rents advanced 0.4% m-o-m in December as landlords, especially those in the mid-range of the market, pushed rents higher against the tight vacancy environment.

Alex Barnes, Head of Hong Kong Markets at JLL, expected the widening rental gap between core and non-core office areas to fuel leasing activity in Hong Kong East, Wong Chuk Hang and Kowloon East. “Occupiers seeking to relocate or grow their office footprints outside of Central consider cost and accessibility in addition to building quality”, he said.

“Reduction in business costs remains a key theme and all these districts provide a significant rental reduction to traditional core markets where rents are rising on limited supply. The opening of the MTR South Island Line is spurring a fresh round of tenant decentralisation to the Wong Chuk Hang office market. Travelling time between Central and Wong Chuk Hang has been reduced to just 15 minutes. With a number of landmark office buildings coming online over the next five years and the completion of the Central-Wanchai Bypass, the appeal of Hong Kong East as an office location will only grow” for front office functions, Alex Barnes added.

Denis Ma, Head of Research at JLL in Hong Kong, said: “A two-speed rental market for office leasing is likely to emerge in the year ahead. With demand remaining weak and vacancy on the rise, rents are forecasted to soften across most of the market in 2017. The exception will be Central, where rents continue to be supported by a tight vacancy environment and sustained demand from PRC corporates. Rents in Central are forecasted to grow a further 0-5% whereas the rest of the market will likely see corrections ranging from 0-5% to 10-15%”.