Office rental growth in Hong Kong accelerates

by wallyg

Office rental growth in Hong Kong accelerates

According to Knight Frank Research, strong demand from the corporate sector and limited new office supply have resulted in declining vacancy rates and accelerating office rental growth. The average rent of Grade-A offices rose by 3.9% in August, after rising by 3.0% in July. The month-on-month rental growth in August was the fastest since April 2008. Among all districts, “Traditional Central” led the market over the past month with rents growing 7.7%, followed by 6.3% in Causeway Bay and 5.9% in Kowloon East.

Mr. Xavier Wong, Director and Head of Research, Greater China, Knight Frank says “in the leasing market, we saw a number of financial institutions and professional services firms scrambling for the limited spaces in core areas. The average vacancy rate on Hong Kong Island dropped to 3.1 % in August from 3.5% three months earlier. Office availability has been particularly tight in Central, where there is an absence of new supply in 2010 and demand from financial sector has been distinctly strong. We have identified 15 office buildings in Central with near-zero vacancy rates as of August.”

“A number of landlords put their office premises up for sale amid the red-hot market,” says Mr Wong. “Price growth slowed slightly to 1.3% over the past month, compared with 2.9% in July. Central led the market with a price growth of 2.1%, followed by 2.0% in Causeway Bay and 1.6% in Sheung Wan. Office prices in Admiralty and Tsim Sha Tsui remained relatively stable in August. After rebounding 76.1% over the past 18 months, the average Grade-A office price in Hong Kong in August was only 8.8% lower than its 2008 peak.”

A landmark transactions in August include the en-bloc acquisition of Bowa House in Tsim Sha Tsui by a local investor, for HK0 million or HK,000 per sq ft. A whole floor in Bank of America Tower in Admiralty was sold for about HK6 million or HK,980 per sq ft, whereas a whole floor in Lippo Centre in the same district changed hands for HK5 million or HK,213 per sq ft.

Mr Wong concludes “considering the stronger-than-expected leasing demand, we have revised our forecast of office rental growth in 2010 from 15% to 25%. In 2011, the average rent is expected to rise by a marginally less rapid rate of 20%, as a number of office completions in Central, including the redevelopments of Dragon Seed Building, Luk Hoi Tung Building and Crocodile House, are due. By mid 2012, the average Grade-A office rental is expected to surpass the previous peak recorded in May 2008.”