Office sales transactions worth $30M or over surge 111% QoQ

Overall net-take up more than trippled.

Government policy restrictions on the residential sector encouraged investors to park their money in the commercial sector. Investment demand for office premises was strong in 4Q 2012.

According to Colliers International, the total value of office sales transactions with a lump sum price of hk$30 million or above surged  111% QoQ to hk$14.9 billion. Local developers took the opportunity to dispose of their commercial  investment assets in non-core business areas. notable sales transactions were focused on some  en bloc buildings in decentralised office districts. average grade a office yield compressed 10  basis points from 3.2% in July to 3.1% in October 2012, reflecting strong investment demand for  grade a office premises.

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Leasing activity during 4Q 2012 was largely underpinned by expansion demand in the legal sector  and newcomers in the finance sector. the overall net take-up increased from 111,000 sq ft in  3Q 2012 to 372,000 sq ft in 4Q 2012.

In Central, tenants in the legal and finance sectors were  comparatively active in office leasing enquiries and typically had office requirements from 3,000
to 5,000 sq ft, while some individual tenants had requirements up to 10,000 sq ft. kowloon East was responsible for the bulk of new take-up during the quarter, as a new round of expansions in the shipping / logistics sectors increased net take-up in the district.

Regardless of increasing take-up, overall grade a office rents saw a downward correction of 2.3%  in 4Q 2012. this was largely due to softening demand for premium grade a office space in Central,  as tenants could not justify the wide gap between premium rents and their budgets. after posting a 0.8% QoQ increase in 3Q 2012, rents in Central dropped by 5.7% QoQ in 4Q 2012. Benefitting from relocation demand, Island East displayed the strongest rent growth of 4.8% QoQ in 4Q 2012,  followed by a 4.3% QoQ increase in kowloon East, reaffirming the trend of decentralisation.

Recent signs of increasing leasing activities show the overall office market is set to regain growth  momentum. the improved business conditions will encourage business expansion plans, and an increasing number of companies in hiring will progressively support office leasing demand. the
overall grade a office rent is predicted to rebound by 4% in 2013.

Buying interest in the commercial sector will remain strong if the tightening policy measures on the residential market are still in place. With the limited buying options in the sub-market of Central, investors and end-users will look for investment opportunities in decentralised locations such as Island East and kowloon East, which in turn will push office prices upwards. Capital values in decentralised areas will outperform core locations over the next 12 months.