A new focus on Kowloon East pushed office rents there higher while Greater Central remains the world’s costliest CBD

July 17, 2018 - 09:57
A new focus on Kowloon East pushed office rents there higher while Greater Central remains the world’s costliest CBD

  • GreaterCentral rents surged to HK$137 per sq ft per month (net), a new record high
  • PRC co-workingoperators absorbed 87% of all co-working space leased in H1, intensifiescompetition for market share in the city
  • Improvedsentiment and expansion by the multi-brand cosmetics/personal care sector willsupport growth in retail rents in Causeway Bay and Tsimshatsui in H2 by 1-3%.


HONG KONG, CHINA - Media OutReach - 11 July 2018 - Greater Central'sGrade A office rents breaking a new record and substantial absorption in Kowloon East were the highlights in Q2 2018,as noted by Cushman & Wakefield, a global leader in commercial real estate services.Meanwhile, buoyed by increased retail sales and increased tourist volumes, the improvedsentiment of the retail market led to a stable rental performance across theboard except for Central.


At 521,600 sq ft, theterritory-wide net absorption surpassed half-million sq ft for the third consecutivequarter, reflecting an active market which supported increasing rents in allsubmarkets. With the average monthly rent reaching HK$137 per sq ft, GreaterCentral remains the world's costliest CBD, about 1.5 times rents in West End ofLondon. Greater Tsimshatsui led the pack in quarterly rental growth (up 3.2%q-o-q) against rental increases at K11 Atelier and The Gateway where theoccupancy rate at the buildings stood above 90% as of end of Q2. Kowloon Easthad an interesting combination of having the highest availability (14.1%) andthe highest level of absorption (532,900 sq ft) among all submarkets. This isin large part due to a new focus on high quality new projects from MNCs such asDBS Bank and VF who have leased 134,000 sq ft and 69,400 sq ft in Two HarbourSquare and Mapletree Bay Point, respectively, for consolidation and cost savingpurposes. In fact, 67% of the 3.1 million sq ft of new supply in Kowloon Eastbetween 2017 and 2019 has been leased. The strong take-up helped push rents in KowloonEast up 1.2% q-o-q to HK$36 per sq ft per month.


Mr John Siu, Cushman & Wakefield's ManagingDirector, Hong Kong, said, "Availability is tight especially on HongKong Island, which limited leasing activity in Greater Central especially wherePRC companies are concerned. The global-top rents of Greater Central continueto drive companies to non-core areas such as Hong Kong East and we expect thedecentralization trend to continue over the next few quarters."


Demand for Grade Aoffice space from co-working operators remained strong, with Kr Space leasing72,500 sq ft in One Hennessy, an upcoming Grade A development in Wanchai, and nakedHub leasing 75,400 sq ft in TheQuayside in Kwun Tong. Mr KeithHemshall, Cushman & Wakefield's Executive Director, Head of OfficeServices, Hong Kong, commented, "The entrance of more PRC co-workingoperators, who contributed to 87% of all Grade A office space leased byco-working players (254,000 sq ft) over the first six months of this year,intensifies the competition for market share in the city. Some leadingoperators are now targeting not only start-ups but also corporate occupiers intheir premises to secure higher and more stable revenue income. As a result, weanticipate that more leasing transactions by co-working operators in core GradeA offices will be recorded in the coming months."


The continuous growth in retail sales in Q2 was underpinned by thejewelry & watches sector, which witnessed 22.3% y-o-y growth from Januaryto May in the largest increase since 2016. A rebound in PRC tourist volumes --up by 12.7% y-o-y from January to May which is the biggest y-o-y growth since2014 -- and a positive market sentiment contributed to stable rental growth inmost core retail submarkets. Causeway Bay and Tsimshatsui edged up by less than0.5% q-o-q. Mongkok recorded quarterly growth of 2.4%, while Central sufferedfrom a quarterly drop of 1.4%.


Vacancy shrank by a larger margin of 1.2% and 9.4%, respectively,in Tsimshatsui and Mongkok, and remained unchanged in Central, while a seasonalrelease in shopfront space in Causeway Bay caused an increase in vacancy to2.6% in Q2. Demand was especially strong from the multi-brand cosmetics/personal care and athleisure sectors in core locations thanks to good businessperformance. The F&B sector also recorded continuous growth in business,but F&B rentals in the core retail areas still declined in the range of0.6-1.4% in Q2. The shortage of labor and resulting higher labor costs remaineda hindrance to expansion, especially for individual operators.


Mr Kevin Lam,Cushman & Wakefield's Executive Director, Head of Retail Services, HongKong, said, "Athleisure is still asector to watch, but the multi-brand cosmetics/personal care sector is evenmore promising, noted by several cases of expansion in Q2, with newinternational brands coming into the Hong Kong market as well. We expect moretransactions from this sector in H2 2018, which should boost rents by 1%- 3% inH2 in Causeway Bay and Tsimshatsui, except for Central which will remain in adowntrend."


About Cushman & Wakefield

Cushman & Wakefield is a leading global real estateservices firm that delivers exceptional value by putting ideas into action forreal estate occupiers and owners. Cushman & Wakefield is among the largestreal estate services firms with 48,000 employees in approximately 400 officesand 70 countries. Across Greater China, there are 20 offices servicing thelocal market. The company won four top awards in the Euromoney Survey 2017 incategories of Overall, Valuation, Agency/Letting and Research in China. In 2017,the firm had revenue of $6.9 billion across core services of property,facilities and project management, leasing, capital markets, advisory and otherservices. To learn more, visit www.cushmanwakefield.com.hkor follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)

MediaPlease Contact:

Elisa Yiu


Marketing and Communications, Hong Kong

+852 2507 0637


Peggy Mak / Penn Leung

Creative Consulting Group

+852 94823144 / +852 6077 7342

peggy.mak@creativegp.com / penn.leung@creativegp.com