Hong Kong Office Market Slowing but Positive by CB Richard Ellis

May 27, 2008 - PRLog -- The robust underlying fundamentals in the Grade A office market, with limited quality stock, minimal vacancy and a notable crunch in new Hong Kong Island supply over the next three years; and the increasing importance of China and Asia to financial institutions due to the region’s  comparatively robust growth prospects in the current economic environment.

The Grade A office market maintained positive momentum, though growth slowed somewhat. The approximately 732,000 sf net floor space from the first phase of the International Commerce Centre failed to alleviate the prevailing supply/demand imbalance, as the space was fully pre-committed.

Though growth has slowed down, overall prime office rent still surged 9.1% q-o-q to HK$71.74 psf (net effective) per month. Average rent in Central rose 9.4% q-o-q to HK$124.05 psf (net effective), while those in CBD fringe locations also performed well.

Sheung Wan registered the strongest Grade A office rental growth in the period under review, rising 11.8% q-o-q to HK$62.56 psf (net effective). However, rental gaps between non-CBD locations and Central remained wide, with Grade A1 Central buildings (e.g. One & Two ifc, AIG Tower and Chater House) fast achieving rents above HK$170 psf (net effective).

With most Grade A office space on Hong Kong Island fully occupied, competition for the limited availability in decentralised locations was fierce, and the recently completed One Island East in Quarry Bay was quickly pre-committed. Growing number of tenants are also considering Kowloon Bay and Kwun Tong as relocation options, due to their competitive costs and the superior quality of recent projects. The Kowloon market saw record high rental transactions and widespread contractions in vacancy during the quarter.

With broad-based expansionary demand and overall vacancy in prime locations falling to 2.2% from 2.9% in the previous quarter, landlords continued to raise rents, especially in Central where Grade A office vacancy is now below 1%.

However, tenant resistance has begun to emerge, with some occupiers implementing space-saving initiatives instead of committing to additional space at current rents.

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CB Richard Ellis (CBRE) is the world's premier, full-service real estate services company. Operating globally, the firm holds a leadership position in virtually all of the world's key business centres.