Hong Kong office rents fall amidst high vacancies

Increased competition and market vacancies drive rental prices down.

Amidst a noticeable decline in rental prices, Hong Kong's office market is grappling with rising vacancies and intensified competition. In the first quarter of the year, the vacancy rate surpassed 16%, prompting forecasts of further drops in rental rates. 

Fiona Ngan, Head of Occupier Services at Colliers Hong Kong, attributed the downward pressure on rents primarily to these high vacancy levels and the fierce rivalry among new and existing developments.

"I think mainly because of the market vacancy, and also the strong competition between the new developments and also the second-hand market," Ngan explained, indicating that these factors are contributing to the changing dynamics in Hong Kong's office market.

With office spaces increasingly lying vacant and the consequent decrease in rental prices, tenants' priorities during relocation have evolved. Cost-saving has emerged as the top consideration, surpassing other factors. Tenants are not only looking for more affordable options but also assessing whether such moves could reduce their operational capacities without compromising their needs.

Beyond cost considerations, tenants are increasingly focused on the quality of buildings, driven by a desire to capitalise on the lower rents to access better-quality spaces. This trend is supported by the popularity of new developments which, despite the broader market's challenges, continue to attract tenants due to their high standards and competitive rental rates.

In response to these market conditions, Ngan offers advice to both landlords and tenants. She suggested that landlords enhance their tenancy management by offering more incentives at renewals to retain occupants. Given the prolonged periods required to secure new tenants, proactive tenant retention strategies are crucial.

"And also when they do the renewal try to give more incentive rather than only the existing rent for the renewal, then they can keep the tenants because when they awaken the premises, if the tenants move out, then I think the timing for looking for a new tenant may take almost one year of time," she advised.

For tenants, Ngan recommends exploring a wider array of options across different areas, noting the shrinking rental gap between Hong Kong Island and other regions like Kowloon. "So they should look at more options not only limited to their own area," she suggested, encouraging tenants to consider diverse locations that might offer more advantageous deals.