- Overall office rental dropped for a consecutive sixth quarter
- Office availability climbed to 11.6%, the highest level since 2005
- Retail sales remained weak with Causeway Bay retail vacancy rate hitting a record high
- F&B sector demand is still under the recent impacts from COVID-19; athleisure sector will grow exponentially into a post-pandemic new trend
HONG KONG, CHINA – Media OutReach – 6 October 2020 – Office rentals extended their declines in Q3, for a sixth consecutive quarter, with the average rent in Hong Kong overall falling 4.7% q-o-q and 13.9% YTD. The drop was largely driven by rental decline in Greater Central (down 6.3% q-o-q and 16.9% YTD) and Wanchai/Causeway Bay (contracted 5.2% q-o-q and 15.0% YTD). As the leasing market is expected to remain weak through year-end, office rentals in Greater Central and Wanchai/Causeway Bay are forecast to drop by as much as 25% and 23%, respectively, for the full year of 2020.
As occupiers continue weather a challenging business environment, net absorption fell by the most ever on record, by -633,000 sq ft (net floor area), in the fourth consecutive quarter of negative absorption. Combined, negative absorption over the first three quarters of 2020 totalled 1.7 million sq ft. Total office space surrendered reached 626,000 sq ft in Q3, representing another 8% increase from Q2 2020. As a result, the overall availability rate climbed to 11.6%, with highest availability recorded in Kowloon West and Kowloon East, of 16.6% and 14.9% respectively.
Mr. Keith Hemshall, Cushman & Wakefield’s Executive Director & Head of Office Services, Hong Kong, commented, “Of the total, 70% space was surrendered by multinational corporations. This upward trend is expected to continue for the remainder of 2020. However, there are also cases of tenants capitalising on this opportunity to upgrade their office environment or to relocate within the same district at a more competitive rate”.
Mr. John Siu, Cushman & Wakefield’s Managing Director, Hong Kong, commented, “One of the key findings from our 2020 Office Occupier Survey, 65% of respondents are planning to allow working from home on a long-term basis. While that’s certain to alter the office leasing landscape, we do not necessarily see it having a major impact on office demand in the long run. It is likely that much of the work from home will be part-time, perhaps one to two days a week. In addition, as firms look to allow more social distancing within the office, many may look to working from home to offset the need to add to their office footprint.”
The retail market continued to be hard-hit by the pandemic and a third wave of COVID-19 cases in Hong Kong. As the latest wave prompted the tightening of social distancing measures, retail sales remained weak, totaling HKD 52.02 billion in the first two months of the third quarter combined, a decline of 18.5% year-on-year. With Mainland visitors a major pillar of retail spending, the on-going border closures continued to severely impact retail sales. Jewellery and watch sales dropped by 47.4% year-on-year while medicines and cosmetics sales fell by 47.3% over the same period.
Retail rentals continued to decline, though at a lower pace as compared to past quarters. The sharpest declines in retail rentals were recorded in the areas of Causeway Bay and Central, recording declines by 7.9% and 7.8% quarter-on-quarter, respectively, and by 41.3% and 40.8% respectively, year-to-date.
Vacancy rates across all major shopping districts were in the double-digits, with those in Causeway Bay climbing sharply to 13.2%, from 7.9% the previous quarter. Meanwhile, rental declines for F&B spaces in Q3 showed signs of slowing, but remain down by around 30% year-to-date across all districts.
Mr Kevin Lam, Cushman & Wakefield’s Executive Director, Head of Retail Services, Hong Kong, commented, “Among the major new leases that took place during Q3, we saw a major contribution from athleisure brands, representing a possible new trend post-pandemic that may dominate the market and drive the market recovery in the near future. With the community becoming more health-conscious while at the same time spending more time at home, we see great opportunities for athleisure brands to gain ground in this fast-adapting market.”
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