Co-working trend keeps Hong Kong office active as rents keep growing

• Greater Central rents reached a new record high at HK$126.6 per sqft per month in Q3, but the pace of growth has slowed from H1
• Significant new leases by co-working space providers signaled booming co-working trend
• Increased presence of PRC brands gives new dynamics to the Hong Kong retail market.

HONG KONG, CHINA - Media OutReach - October 12, 2017 - Cushman & Wakefield revealed that office rents in Greater Central broke the record again in Q3 but the pace of growth has slowed. The booming co-working trend simulated office leasing demand during the quarter. In the retail market, the expansion of PRC retailers in a number of sectors was notable, as brands seized upon the much discounted rents to set up business.

The realization of pre-leases at newly completed Grade A office buildings helped boost the overall net absorption to 42,755 sqft in Q3. However, the growth was upset by negative absorption recorded in several submarkets owing to relatively subdued leasing demand and the return of several whole floors to the market. Nonetheless, a tight vacancy environment contributed to the overall weighted average rents edging up 0.3% q-o-q to HK$80.5 per sqft while Greater Central rentals were up slightly by 0.5% q-o-q to HK$126.6 per sqft -- a new record high for Hong Kong.

Supported by requirements from new start-ups and MNCs seeking more flexible lease terms and CapEx avoidance, demand for co-working space has been relatively strong in recent quarters. Mr Keith Hemshall, Cushman & Wakefield's Executive Director, Head of Office Services, Hong Kong, commented, "The booming co-working trend stimulated more co-working space providers to lease offices to set up their operation centers. The 53,900-sqft lease committed by Spaces (Regus) at Sun House in Sheung Wan (in addition to the 40,000 sqft already pre-committed in Lee Garden Three), aptly illustrates the rapid growth of the co-working sector in Hong Kong, with key players such as WeWork, Naked Hub and The Hive having already secured over 400,000 sqft of space in Central, Wanchai, Causeway Bay and Kowloon Bay. We expect leasing demand will be underpinned as more players enter the market, including landlords who are eyeing this sector as an alternative revenue stream and source of conventional office tenants."

Meanwhile, PRC companies continued to focus on prime office spaces for business purposes. Mr John Siu, Cushman & Wakefield's Managing Director, Hong Kong, said, "Office space at prime buildings such as ifc and AIA Central remains on the radar of PRC companies. However, the availability rate in Prime Central at just 3.5% in Q3 -- the lowest among all districts -- indicates an extremely tight stock to meet the demand by PRC companies. Given the deals in the pipeline, we expect the share of new lease by PRC companies, especially those engaged in the asset management and banking and finance, in Greater Central to increase in Q4."

In the retail leasing market, visitor volumes had a mild increase of 1.9% y-o-y during the first eight months of 2017. Retail sales were on a streak of growth for six months up to August with an average growth of 1.7% per month. Sales of jewelry & watches -- the luxury goods -- recorded a substantial increase of 3.2% y-o-y from January to August over other types of goods.

Rental correction continued in Q3 as rents in Tsimshatsui, Causeway Bay and Mongkok dropped by between 0.3% and 2.1% q-o-q. Under pressure against increased vacancy, Central's rents fell 3.5% q-o-q and are forecast to decrease 10-15% for the full year of 2017. The trend in F&B rents was similar, which fell between 0.8% and 2.1% q-o-q and Central again under the biggest pressure.

Notable in Q3 was the expansion or entrance of PRC brands in sectors including cinemas, F&B, cosmetics, fashion, jewelry and gallery, shown by names such as JNBY, MINISO, Cinema City and Hand. Mr Kevin Lam, Cushman & Wakefield's Executive Director, Head of Retail Services, Hong Kong, said, "PRC brands are taking advantage of the falling rents to establish or increase their presence here, as Hong Kong is an ideal first overseas market to test the water and helps promote the brand image of these PRC retailers. In terms of location, PRC brands mostly preferred core locations such as Causeway Bay and Tsimshatsui. This is expected to give support to core rents in near future."

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Across Greater China, there are 20 offices servicing the local market. The company was named the top China real estate services firm in four categories of Overall, Valuation, Agency/Letting and Research by Euromoney's 2017 Survey. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients' ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com.hk or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)