Hong Kong, mainland China office-leasing outlook bleak even as mood brightens across Asia-Pacific: CBRE

Leasing market professionals in Hong Kong and mainland China are overwhelmingly pessimistic at around negative 20 per cent, according to a CBRE survey
Hong Kong’s office vacancy rate stood at 14.7 per cent in the fourth quarter of 2023, rising from 12.9 per cent in the third quarter, according to Savills

Hong Kong property

Cheryl Arcibal

Published: 8:30am, 20 Mar 2024

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The commercial property leasing market across most Asia-Pacific markets is improving, except in Hong Kong and mainland China where sentiment is particularly downbeat, according to CBRE.

While respondents in South Korea and Japan were the most positive at just under 40 per cent, the sentiment was overwhelmingly pessimistic Hong Kong and mainland China at around negative 20 per cent, according to a report by the property consultancy on Tuesday that surveyed some 320 leasing market professionals across the region.

“Mainland China and Hong Kong were the only markets to report negative sentiment, indicating that more time will be needed for these markets to recover,” the study said. “Half of the respondents expect rents and incentives to remain flat.”

Respondents in the mainland and Hong Kong also expect office rents to decline further.

The outlook for Hong Kong’s office sector looks bleak. The overall office vacancy rate in the city rose to 14.7 per cent in the fourth quarter of 2023, edging up from 12.9 per cent in the third quarter, according to Savills. The consultancy said it expects office rents to decline between 5 per cent and 10 per cent this year owing to massive new supply coming on stream and uncertain demand.

On the mainland, the office sector is also likely to remain a tenant’s market this year, according to JLL.

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There will be a glut of new office supply in major cities in the next two years, according to Cushman & Wakefield. Beijing, Shanghai, Shenzhen and Guangzhou are likely to see aggregate supply ranging from 500,000 square metres (5.4 million sq ft) to more than 1.22 million square metres this year.

Except for mainland China and Japan, most property markets in the region are grappling with high interest rates that are dampening investment demand. But the challenges in Hong Kong and mainland China were more acute owing to the property crisis facing mainland developers as well as the uncertain economic outlook.

Real estate investment in China fell 9.6 per cent to 11.09 trillion yuan (US$1.5 trillion) last year, nearly the same as the previous year.

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Hong Kong’s office property segment, besides feeling the pinch of higher interest rates that are at a more than two-decade high, is also vulnerable to the economic fluctuations in mainland China. In 2023, more than a fifth of the leasing volume in the city’s main business district of Central was from mainland Chinese companies.

The highest proportion of respondents looking to reduce both office costs and space were from mainland China and Hong Kong, according to CBRE.

The results are in line with a study by Colliers in September, which showed that more than a fifth of office tenants in Hong Kong were likely to downsize their space in the next two years, with some even looking to relocate.

The top three reasons for trimming their real estate footprint were rising costs, shrinking business demand and further implementation of work-from-home policy, according to Colliers.

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