The Hong Kong government is taking advantage of the drop in office rents to seek additional space for some departments, joining private companies looking to expand amid an improving economy.
The Transport Department recently signed a lease for a huge office space in Kowloon, while the Lands Department is in talks with landlords to take up additional office space, according to Knight Frank.
In May, office rents in Kowloon East fell 9.3 per cent year on year to HK$26.9 per square foot per month, while in Central they dropped 12.9 per cent to HK$111.8 per square foot compared to a year ago, the latest data from Knight Frank showed.
“They are mainly looking for space in Kowloon where rents are about a quarter of those on Hong Kong Island,” said Martin Wong, director and head of research and consultancy for Greater China at Knight Frank.
The Transport Department recently leased 27,000 sq ft at Skyline Tower in Kowloon Bay, a core part of Hong Kong’s plan to transform Kowloon East into the city’s second core business district, at about HK$22 per square foot, while the Lands Department is looking for additional space close to its Cheung Sha Wan offices, he said.
In the past year, the Government Property Agency, which rents and allocates office space to various departments among other activities, has leased 100,000 sq ft at Skyline Tower to accommodate the back up offices of the Social Welfare Department, Immigration Department, Drainage Services Department and Audit Commission.
“The government’s move indicates rents in Kowloon East have dropped substantially,” said Paul Yien, senior director of office leasing advisory at JLL Hong Kong.
Overall grade A office rents in Hong Kong have fallen about 27 per cent from the peak in June 2019, when they started their downward spiral amid the anti-government protests followed by the Covid-19 pandemic, according to JLL. Local and multinational firms opted for downsizing or implemented work-from-home arrangements to contain costs amid tougher operating conditions.
Yien said the rate of decline in rents has narrowed since early this year, and expects overall rents to fall by five to 10 per cent this year, compared to the 18.9 per cent plunge in 2020.
For the first five months this year, office rents have declined 4.1 per cent, JLL said. With more companies starting to expand, the property consultancy said the city’s grade A office market recorded its first net absorption since July 2019.
“We have helped several China-backed securities firms and asset management companies in Central take up more space,” said Yien.
Companies that have recently leased office space include the food delivery company Foodpanda, which leased two floors with a gross floor area of 39,000 sq ft at Times Square in Causeway Bay in June.
BitMEX, which operates a cryptocurrency derivatives exchange out of the priciest office tower in Hong Kong, is exploring the possibility of leasing additional space equivalent to half a floor at Cheung Kong Center from CK Asset Holdings.
The three-year lease of BitMEX’s 20,000 sq ft of space on the 45th floor of the tower, costing about US$600,000 per month, expires later this year.
With business confidence building up in Hong Kong in recent months, companies have started reassessing their real estate needs, said Alex Barnes, head of agency leasing at JLL Hong Kong.
“We believe that the worst period for the office leasing market has passed and rental fall will moderate in the second half of the year for most core markets,” he said.