HONG KONG, Oct. 22, 2012 /PRNewswire/ -- Cushman & Wakefield, the world's largest privately owned real estate services firm, today released the Q3 2012 trends for the Hong Kong office leasing market and the outlook for the fourth quarter.
Stable transactions in Greater Central and low availability in other districts
Leasing transactions in Greater Central remained relatively stable in the third quarter as compared with a quarter earlier. Occupiers took advantage of the higher availability in Greater Central and landlords have continued to demonstrate more flexibility on rents to lure tenants. 78% of new lease transactions were for spaces less than 10,000 square feet. In Wan Chai / Causeway Bay, the number of new leases dropped noticeably from a quarter earlier. Low availability in this market has allowed landlords to remain firm on rents even though more occupiers are becoming increasingly conservative in their expansion and budgeting. The non-core office markets were as equally active in the third quarter and rents continued to rise. Office availability dropped to a new low at 2.3% in Kowloon and the overall market was led by 5.2% rental growth in Kowloon East.
Gary Fok, Senior Director, Commercial of Cushman & Wakefield Hong Kong said, "With the exception of some prime building premises, Greater Central saw moderate demand for office space and new lease activity has been stable. Several new set-ups and expansions were recorded during the quarter. We expect occupiers to continue to seek out solutions to meet their requirements, especially among Grade A buildings where landlords are willing to entertain offers below HK$90-100 per square foot. Large whole floor spaces in prime buildings, notably those priced above the HK$100 per square foot threshold, are not likely to see a major improvement in demand in the short-term."
Office availability remained at 6.4% in Greater Central in Q3. Placing some additional pressure on landlords' expectations was the revelation of some additional space reductions among the banking sector amidst stagnating business conditions. With office availability at its highest level since Q4 2009 and an overall lull in demand, Greater Central rents came under pressure in the third quarter. The overall average net effective rent declined by 8.5% q-o-q to HK$101.4 per square foot per month.
In Wan Chai / Causeway Bay, the office availability rate increased slightly to 5.2% due to the completion of 28 Hennessy Road. Excluding this project and Hysan Place, the district was in a state of nearly full occupancy with an availability rate of 2.5%. Limited availability has enabled landlords to hold firm on asking rents, even in those new projects with a significant amount of space still available for lease. The average net effective rent declined slightly by 0.7% q-o-q. In Hong Kong East, strong demand for non-core space and low office availability triggered further rental appreciation, whereas rents increased by 2.0% q-o-q. One notable transaction was the leasing of more than 114,000 square feet by CITIC International Bank in Devon House.
In Kowloon, sustained healthy demand for non-core, cost-effective office space drove the office availability rate to a new low of 2.3% during the quarter. Two insurance companies, namely Ageas and AXA, leased 49,000 sq ft in Harbour City, Tsim Sha Tsui and 46,000 sq ft in One Kowloon, Kowloon Bay and the availability rates in these markets dropped to 1.6% and 3.1%, respectively. Rents continued to increase across most of Kowloon, led by 5.2% rental growth in Kowloon East. Rental growth in Tsim Sha Tsui and Kowloon West was more modest at 1.2% and 1.9% respectively.
With only a few contiguous whole floor spaces now available in Kowloon East, larger occupiers are faced with very few options in the market. Several new projects will be completed in the coming years, however, a majority of them are for strata-title sales and most will not have floor plates above 10,000 square feet, which is suitable for large corporate occupiers.
Gary Fok, Senior Director, Commercial of Cushman & Wakefield Hong Kong said, "Except for in Greater Central, there is low mobility in the market for tenants as overall availability is standing at 3.9%. Such low availability will support an increasing proportion of renewals in the market and work in landlords favor, underpinning further rental appreciation." Cushman & Wakefield expects that rents outside Greater Central will increase slightly by an additional 2-3% in the fourth quarter. The glut of supply in Greater Central will continue into the fourth quarter as large, more costly prime office space is not likely to garner substantial occupier interest. Landlords are expected to continue to adjust their rents accordingly and therefore, we are expecting an additional rental decline of 3-5% in Greater Central in the fourth quarter.
About Cushman & Wakefield
Cushman & Wakefield is the world's largest privately-held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 235 offices in 60 countries and more than 14,000 employees. It offers a complete range of services for all property types, fully-integrated on a global basis, including leasing, sales and acquisitions, debt and equity financing, investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than $5.5 billion in assets under management through its wholly-owned subsidiary Cushman & Wakefield Investors. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge. In China, Cushman & Wakefield maintains six market-leading offices in Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen and Hong Kong. More information is available at www.cushmanwakefield.com.
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