MARKETS & INVESTING | Staff Reporter, Hong Kong

Office rents to fall 3.8% in 2019 as stock markets slump

The slowdown will break a four-year streak.

The steady four-year climb of rental costs in the world’s most expensive office market are expected to come to an end as the global equities rout continues to dampen sentiment of office tenants.

Also read: Central is the world's priciest prime office market for third straight year

Grade A office rents in Central/Admiralty are expected to drop by 3.8% in 2019 and citywide rents to flatten, according to real estate consultant Colliers, as the office sector takes a beating from the downward spiral of the Hang Seng Index (HSI).

“We now expect a lagging effect of the 22% drop in Hong Kong’s Hang Seng Index from its 2018 high to be a 4% decline in rents in Hong Kong Central in 2019,” the report’s authors said. 

Financial stocks have a 48% weighting in the HSI and financial tenants occupy 54% of premium office stock in the CBD. As a result, the office sectors of Hong Kong, along with Seoul are directly tied to the performance of the stock market unlike their regional peers Singapore and Shanghai where rents are relatively insulated from the market downturn.

The HSI has plunged about 13% in 2018 YTD in contrast to a 36% gain in 2017 as deepening trade tensions between the US and China and a higher interest rate environment has weighed on sentiment.

Also read: Retail investors cash in on Hong Kong's market rout

Singapore, on the other hand, is in stronger position to weather the slumping stock markets even as the finance sector accounts for more than 40% of Straits Times Index and prime office stock. In fact, Grade A office rents in the Lion City are poised to rise to 8% in 2019 and 5% in 2020 as a consistently tight vacancy and stable rental environment insulates the local office market from growing economic uncertainties.

“Whilst we acknowledge the risk that our rent forecasts may prove too high if turbulence in stock markets continues and results in reduced demand from finance sector occupiers, Singapore looks less vulnerable than Hong Kong in particular to pressure on CBD rents next years,” added Colliers.

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