Grade A office prices predicted to dip 3-10%

Cooling measures putting downward pressure.

According to Colliers International, in terms of Grade A office yield, it has kept stable at 2.8% between January and May 2013.

Considering the potential interest rate hike in anticipation of scale back of the US quantitative easing policy, the Grade A office yield in Hong Kong is projected to increase 30 basis points in the coming twelve months.

Meanwhile, the slowing sales activity coupled with the government’s restrictive measures will put downward pressure on Grade A office prices that are expected to decline by 3-10% over the next twelve months.

Here's more from Colliers:

In 2Q 2013, the office leasing demand in Hong Kong stayed soft against the backdrop of the weakening economic conditions such as the US Federal Reserve’s plan to scale back its quantitative easing policy, weak performance of Hong Kong’s stock market, downward adjustment for forecast of the local GDP growth by several organisations, etc.

“Corporate tenant has become less confident. During 2Q 2013, the market saw initial signs of surrender cases. Several small- and medium-size enterprises, occupying floor areas of less than 5,000 sq ft, have downsized and surrendered space back to the market in order to save costs,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. 

Leasing activity was relatively quiet during the quarter and was mainly supported by demand for small-to-medium sized office spaces.

In Central, due to increasing difficulties to secure large office spaces, the majority of tenants opted to renew their existing leases unless they needed a significant change in office size, whether due to expansion or consolidation. 

Amid the slowing sales market, strata-title owners of the office buildings in Kowloon offer their premises for lease.

“In order to attract tenants, strata-title owners would offer attractive rental discount rate – up to 15% or above more than those asked for in single-owned office buildings with comparable quality,” Lo notices.

In Kowloon East, substantial office supplies of 800,000 sq ft that come from revistalised industrial buildings will be available for lease from 2014 onwards.

This intensifies competition among office buildings, which prompts landlords in the district to be more negotiable in asking rents and incentive offerings, for example, providing a rent-free period.