Hong Kong Office Rents Plummet, Businesses Eager to Relocate

Top-quality office buildings in Hong Kong possess several key features that attract tenants. These features include ESG certification, boasting high environmental, social, and governance standards, access to quality healthcare facilities, large floor space, a meticulously designed and accessible transportation system, as well as state-of-the-art equipment such as advanced air-conditioning systems. Given the enticing qualities of these prestigious buildings, numerous companies have seized the opportunity to upgrade their offices. Jefferies Financial Group, for instance, relocated its lease from the Cheung Kong Center to the Two International Finance Center building, enhancing its working environment significantly. Similarly, ByteDance, the parent company of the wildly popular app TikTok, decided to move into the One IFC building, recognizing the immense benefits it offers. Another notable example is law firm Stephenson Harwood, which opted to move into the One Taikoo Place commercial complex in Quarry Bay.

It is important to note that the trend of seeking new office spaces is not limited to Hong Kong Island alone. Office tenants in Kowloon are also relocating to Hong Kong Island, drawn by the proximity to the Central Business District (CBD). The Edrington Group, a luxury winery, upgraded its tenancy from Exchange Tower in Kowloon Bay to a spacious 1,550-square-foot space in Two Pacific Place, a property owned by Swire Properties.

Hongkong Land Holdings, serving as the largest owner of office properties in Trung Hoan, faces some challenges due to the age of several of its buildings, with some exceeding 30 years. Notwithstanding, Hong Kong Land is currently faring well, as indicated by the low vacancy rate within its buildings. As of June, the vacancy rate stood at an impressive 6.2%, significantly lower than the average vacancy rate of 9.4% in the Trung Hoan area. Prince's Building, the company's oldest property, boasts an occupancy rate close to 100%, affirming its appeal and desirability. Hongkong Land has demonstrated its commitment to preserving the quality of its buildings by investing up to $100 million per year in upgrading its properties.

However, despite their current success, Hongkong Land may find themselves facing future challenges. Bloomberg Intelligence analyst Patrick Wong highlights the inevitable aging and obsolescence of the company's buildings, stating that while Hongkong Land has undertaken upgrades and enjoys the advantage of a pedestrian bridge linking its properties, the fact remains that their assets continue to age. Whenever an older building requires closure and significant renovations, landlords face the potential loss of rental income, particularly during periods of economic decline. This, therefore, emphasizes the necessity for building owners to consider their actions carefully.

The current condition of the office rental market in Hong Kong presents a unique opportunity for companies to secure top-quality office spaces at reduced rents. The decreased demand, combined with an oversupply situation, has led to a substantial drop in Grade A office rents. Tenants are capitalizing on this situation, upgrading their offices and expanding into larger, more desirable locations. Hongkong Land, as the largest office property owner in Trung Hoan, faces the challenge of aging buildings, but has made significant investments to maintain their appeal and desirability. While the long-term outlook may pose certain challenges, the current state of the market offers unprecedented potential for tenants seeking quality office spaces in Hong Kong.