Hong Kong Major Report - The Evolution of the Hong Kong Grade A Office Market - A Telescopic Analysis
In spite of multinationals adopting a cautious approach towards global business expansion, Hong Kong office landlords continue to enjoy close-to-full occupancy and rising rents in 2016. Leasing activity in the Central CBD is being driven by solid demand from existing companies and new entrants from China, while in the sales market, larger enterprises, also predominantly from the mainland, have displayed robust demand for en bloc office buildings. Decentralisation is also a major theme at present, with cost-saving a key priority for multinational occupiers.
This Special Report by CBRE Research uncovers and analyses the latest Grade A office occupier trends in Hong Kong and explains how the market has evolved since 2013. The report was compiled by conducting a comparative analysis of floors and subdivided units in the more than 200 Grade A office buildings across the city.
Top level findings include:
• Total occupied space surged by 4.1 million sq. ft., reflecting sustained demand.
• Vacancy fell to low-single digit levels.
• Rents continued to rise, ensuring Hong Kong retained its status as the most expensive office market globally.
• In terms of square footage, the banking and finance sector registered the most expansion. The insurance sector led in terms of percentage growth.
• The period was characterised by increasing demand for serviced offices and co-working space.
• Logistics and trading contracted the most by occupied space.
• Chinese firms registered a 1.2 million sq. ft. net gain in total occupancy between March 2013 and March 2016, compared to the 4.1 million sq. ft. growth in total occupied space across Hong Kong.
• Decentralisation for cost saving and space availability became increasingly popular.
• Owner-occupiers purchasing en bloc office buildings emerged as a key trend.
CBRE Research forecasts that the coming years will see the following trends:
• Chinese companies will continue to increase their office footprint in Hong Kong and will be a net absorber of space returned by western occupiers.
• Western banks will remain cost-sensitive but Chinese institutions will continue to expand, with the leading firms eventually matching the office footprint of their western counterparts.
• New demand from non-existence Chinese financial firms will remain strong, with their requirements estimated at circa 1.8 million sq. ft. of Grade A office space.
• Legal and professional services firms will benefit from an increase in mergers and acquisitions (M&A) activity, but expansionary demand will be limited.
• Expansionary demand from insurance companies will be weaker compared to previous years.
• Cost-saving is expected to remain a key theme, with decentralisation and workplace strategy set to take on a more prominent role. Struggling industries such as retail and wholesale, as well as logistics and trading, will display more demand for affordable space.
• Co-working space and serviced offices will gain popularity among corporates with elastic real estate needs, allowing them to accommodate short-term space requirements without needing to commit to long leases.