Better business sentiment boosts office market rent growth

It has been noted that there is a close relationship between growth in high value added service sectors and growth in Grade A office rents.

According to a research note from Colliers International, in fact, the growth of the high value service sectors, rather than the overall economy, has a more significant impact on office rent.

“Business sentiment in Hong Kong was moving downwards until Q2 2016, which looks as though it was probably the bottom of the most recent cycle. Looking forward, we expect the present rebound in business sentiment to continue over the rest of this year and into 2017, driven by stabilisation in the Chinese economy and modest US economic expansion.

This in turn should support positive rent growth. This is the crux of our prediction that the benchmark rent in Hong Kong will rise by 12% between end-2015 and end-2020,” said Daniel Shih, director of research.

Here's more from Colliers International:

While overall office rent market has been edging up, the core and non-core districts have been developing into a two-tier market due to uneven demand and supply. In core CBD locations, rent has been supported by keen interest from mainland Chinese companies and very limited supply.

Colliers estimates that office rent on Hong Kong Island will increase by 4% while Kowloon rent will decrease by 7% in 2017 due to new supply in Kowloon East. “We have seen the Wong Chuk Hang office market picking up before the commencement of MTR South Island Line.

The current average net effective rent in Wong Chuk Hang is HKD31.9 per sq ft, and we expect a significant rental growth of 19% in 2017. Flexible working space as an alternative solution for cost saving is expected to be widely adopted in the future workplace environment,” Fiona Ngan, general manager of office services, commented.