Office buildings in Central feared to get vulnerable to weaker rents

No large buildings scheduled until 2017.

According to Global Research and Consulting’s Asia Pacific Office Market Outlook 2014, markets such as Hong Kong and Singapore which have no capital flow restrictions will be exposed to higher downward pressure on capital values. Both markets will be vulnerable to more yield decompression risks.

Here’s more from Global Research and Consulting:

Overall Grade A office rental growth will be relatively flat on Hong Kong Island and Kowloon with some slight potential for upside should the domestic economy improve. Selected buildings in Central may be vulnerable to weaker rents due to some potentially large vacancy. Decentralised submarkets will continue to outperform and display fairly stable growth.

Tenant retention will be the key objective for landlords in 2014. Occupiers will continue to be cost-conscious and demand for cost-effective space is expected to remain firm. Large occupiers will continue to renew in their current location due to the tight availability of large spaces. Companies planning IPO listings in Hong Kong may help boost leasing momentum in core areas as they look to open new offices.

The development pipeline will remain thin with no large footplate single landlord buildings scheduled for completion on Hong Kong Island until 2017. The limited leasing options will encourage companies to buy their own space.

The lending environment could tighten in HR 2014 due to potential capital outflows in the aftermath of QE tapering. Capital values and rents are expected to be flat in 2014.

Given the high price of office properties and the generally low yield environment, investors will adopt a value-add angle when making their investment decisions. The conversion of old industrial buildings in decentralized business districts into offices will likely continue.