Decentralisation underpinned 2.6% rise in Quarry Bay rents to $54.65 psf in February

Stocks of larger floor space are expected to be released in 2020 and 2021.

In February, decentralisation continued to gather steam, with large occupiers competing for office space in Quarry Bay, according to a report by Knight Frank.

The movement was said to underpin rents in the area to rise 2.6% MoM to $ 54.6 psf per month in February whilst vacancy rate shrank to 1% from 1.1% in the previous month.

The firm also saw a trend of large corporates reconfiguring their office layouts, such as agile space arrangement, in order to save cost. The slowing of the mainland China’s gross domestic product (GDP) could mean that the market will continue to see mainland activities subdued in 2019.

Meanwhile in Kowloon the number of office leasing transactions dropped to around 70 in February from over 120 in the previous month. Most of the deals were renewal cases, and of medium-scale, with an average area of 5,600 sq ft.

Significant transactions were recorded mainly in Kowloon East, including German supermarket chain ALDI’s three floor lease in Millennium City 6 in Kwun Tong, with a total area of 51,000 sqft, accounting firm Cheng & Cheng CPA relocation from Wan Chai to Kowloon Bay to a 32,000 sqft office in Enterprise Square 5 Tower 1.

“The opening of the High Speed Rail has not significantly boosted office demand from mainland firms. However, in Tsim Sha Tsui, there were some demand from small and medium-sized mainland start-ups of various sectors, including semi-retail, investment and healthcare. This has led to more landlords in Tsim Sha Tsui strategically converting office floors into smaller units,” Knight Frank noted.

Meanwhile, rents of Grade-A office in Central stayed flat at $164 psf whilst vacancy rate remained low at 1.5%, partly due to the current inadequate supply. Even though there were some surrender spaces available in the market, these were mainly of less than 5,000 sqft. As such, major landlords in Central stood firm on rents. Stocks of larger floor space are expected to be released in 2020 and 2021, Knight Frank noted.

“In contrast, smaller landlords tended to be more flexible and were willing to offer incentives in order to secure more transactions,” they added.