Hong Kong office rents at top of the world

• Surpassing the 2008 peak level, Greater Central rents are now at HK$126 per sqft per month -- a global top -- and are set to rise further in H2
• Decentralization is set to continue for multinational corporations with cost-saving concerns
• Softened F&B rents drove the opening of concept stores or start-ups.

HONG KONG, CHINA - Media OutReach - July 4, 2017 - Cushman & Wakefield revealed that office rents in Greater Central have reached a new record high in Q2 and have the room to rise further in the second half of this year, with the growth supported by continued demand by PRC companies. The retail leasing market saw no way out yet as business in Q2 was generally slow and continued to drive down rents. More retailers opted for pop-up stores instead of brick-and-mortar expansion amid the uncertain market prospects.

Overall office net absorption in Hong Kong dropped 66% to 141,033 sqft in Q2 2017, but the ease in demand did not affect the growth of the overall weighted average unit rents, which rose 0.8%   Q-o-Q to HK$80.1 per sqft, due to the decreased availability in most districts. The rental growth was led by Greater Central at 2.9% and Wanchai/Causeway Bay at 1.7% from Q1. The fact that core office rents are all at record high reflects a strong leasing interest in the core areas.

Particularly in Greater Central, PRC companies remained active and accounted for 85% of major new leases in Q2. Notable transactions included HNA Group's lease of 93,600 sqft in Three Exchange Square and Huarong Group's lease of 18,700 sqft in Two Pacific Place. Mr Keith Hemshall, Cushman & Wakefield's Executive Director, Head of Office Services, Hong Kong, said, "Commitments by PRC companies monopolized Q2. The strength of demand will support further growth in rents in the second half of 2017, meaning we shall see more record highs in Greater Central and other core areas."

MrJohn Siu, Cushman & Wakefield's Managing Director, Hong Kong, commented, "Given Hong Kong core office rents are now the most expensive in the world and are set for further growth in H2, the pace of decentralization will increase further as the rental gap between Greater Central and non-core areas such as Hong Kong East continues to widen. Despite the lack of major decentralization transactions in Hong Kong East in Q2, occupiers remained interested in the area and were actively sourcing space. We expect more MNCs to consider relocating to quality business space in non-core areas this year."

Rental comparison -- Global top 3 markets

In the retail leasing market, visitor volumes have continued to improve in Q2, with more Mainland and international tourists returning to local streets. Luxury goods reported a rare gain in sales in March but the momentum has since eased in Q2, as business has slowed in general. Only the medicines & cosmetics sector maintained steady growth in sales.

Still under pressure amid the uncertain outlook, core rents dropped by between 1.2% and 3.4%    Q-o-Q and was most acute in Central due to the vacancy rate there rising to 7.1%. Non-core rents in Yuen Long and Tuen Mun were close to stable. Looking ahead, core rents are expected to drop by another 5% in H2, and Central could face the most severe pressure due to elevated vacancy.

Mr Kevin Lam, Cushman & Wakefield's Executive Director, Head of Business Space, Hong Kong, commented, "This year more retailers, especially those in the cosmetics sector, have opted for pop-up stores or short-term leases in core and non-core locations. This budget-friendly option enables retailers to test the popularity of a location. We expect the trend to continue in H2."

Business also slowed for the food & beverage trade, and F&B rents continued a steady softening since peaking in Q2 2016. The drop this quarter was led by Central (-2.5%) and Causeway Bay     (-1.8%). Mr Lam said, "F&B operators are seizing the moment to enter the market or open concept shops, and the interest in sourcing space in areas close to the core districts remained high. For the traditional Chinese restaurateurs, however, the pace of expansion is more cautious. We expect F&B rents will continue to be under pressure in H2 in view of the market outlook."

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop and live. The firm's 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Across Greater China, there are 20 offices servicing the local market. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of US$5 billion across core services of agency leasing, asset services, capital markets, facility services, global occupier services, investment & asset management, project management, tenant representation and valuation & advisory. To learn more, please visit www.cushmanwakefield.cnor follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china