Cushman & Wakefield : Office Leasing Activity Grows but Availability Remains High

July 12, 2021 - 04:53
Cushman & Wakefield : Office Leasing Activity Grows but Availability Remains High

F&B Rents in First Rise Since Q3 2016 yet Relaxation of Cross-Border Restrictions may Impact Short-Term Demand

Highlights of Office Market

- Citywide rents dropped 1.4% q-o-q, mild decline from -2.0% q-o-q in Q1

- Net absorption at -192k sq ft, improved from -900k sq ft in Q1

- Availability rate at 14.4% is expected to remain stable in 2H 2021

Highlights of Retail Market

- YTD retail sales increased by 8.5% y-o-y

- Vacancy rate remained flat

- Overall rents to stabilize in 2H 2021

- Relaxed travel restrictions will induce a short-term drop in retail demand as locals resume outbound travel

HONG KONG SAR - Media OutReach - 7 July 2021 - Global real estate services firm Cushman & Wakefield revealed today that both office and retail rental markets have shown initial signs of stabilization in Q2 2021. While office leasing activity is on the rise, the average availability rate is expected to remain at a similar level of 14.4% throughout 2021. Leasing activity was most active in the finance and insurance sectors.

Table 1 - Hong Kong Office Rents Comparison

Source: Cushman & Wakefield Research

Table 2 – New Leasing Transactions

Source: Cushman & Wakefield Research

Table 3 – Retail Sales Comparison

Source: Hong Kong Census & Statistics Department; Cushman & Wakefield Research

Table 4 – Number of Fitness Centres in Hong Kong

Source: Hong Kong Fitness Guide, Asian Academy for Sports & Fitness Professionals (HKSFP)

The F&B sector retail rental value recorded an overall mild increase for the first time since Q3 2016, mainly as a result of growing demand for fine-dining options as residents have turned to upscale dining experiences as an alternative to the travel they enjoyed before the pandemic. Meanwhile, demand from lifestyle and wellness brands, including gyms and fitness operators, continues to rise as people's daily routines and attitudes towards healthier lifestyles continue to take shape.

Office Market – Leasing Activity Increasing

Overall rental value declined at a milder pace in Q2 2021, resulting in an all-district average drop of 1.4% q-o-q. Office rents in Greater Tsimshatsui and Kowloon East have dropped 3.5% and 2.3% q-o-q respectively, the highest two among all sub-markets. Mr. John Siu, Cushman & Wakefield's Managing Director, Hong Kong, commented, "Office rental value is still under pressure as most occupiers remain cost-conscious, availability of office space for lease is high, and the economy is still in its early stages of recovery."

Net absorption recovered significantly from the record negative high figure of -900,000 sq ft in Q1 to -192,400 sq ft in Q2. Surrendered stock dropped by 223,700 sq ft, or 31% q-o-q, from 724,500 sq ft to 500,800 sq ft. Amongst the reduced surrendered stock, 131,100 sq ft (59%) was leased by replacement tenants, and the remaining 92,600 sq ft (41%) returned to the market as direct stock. In terms of total area, most of the new lettings in Q2 were committed by tenants in the banking & finance (22%) and insurance (21%) sectors. MNCs contributed 65% of the new lease area in the quarter, while mainland China and Hong Kong companies accounted for the remaining 20% and 15% respectively (Table 2).

Meanwhile, the overall availability rate remained at a similar level of 14.4%, as compared with 14.0% in Q1. Mr. Siu added, "We have seen a gradual increase in leasing activity and enquiries in Q2 as office occupiers have become more prepared to make real estate decisions in the past few months. Yet the overall availability rate still lingers at around 14%. We forecast the rate to remain quite stable for the rest of 2021, but overall space availability will rise next year when new projects are due for completion."

A total of 2.75 million sq ft of new office supply will enter the market in 2022, including Two Taikoo Place, AIRSIDE, Millennium City 8, 388 Kwun Tong Road and 888 Lai Chi Kok Road. With new office space added to the market, we anticipate that more large occupiers will take advantage of the current market downturn to make pre-lease commitments in these new projects for office consolidation, with a view towards minimizing their occupancy costs and improving their working environment.

Retail Market – F&B & Wellness Demand on the Rise

Local consumption has supported positive retail sales with an 8.9% y-o-y increase in the first five months of the year. Sales from Jewellery & Watches and Fashion & Accessories segments demonstrated positive growth of 34.2% and 25.6% y-o-y respectively (Table 3). Yet overall retail rents were flat in Q2, as both tenants and landlords remain conservative and cautious on the overall economic recovery in the long-run.

Diving deeper into segment analytics, F&B and health and wellness are outperforming other sectors. Mr. Kevin Lam, Cushman & Wakefield's Executive Director, Head of Retail Services, Hong Kong, said, "The impact of the pandemic has resulted in pent-up demand for relaxation and lifestyle adventures. We are seeing surging demand for fine-dining as an alternative, prompting the F&B sector, especially high-end authentic and specialty luxury dining, to lease superior retail spaces in town. Yet, current demand is focused on F&B brands that emphasize culinary journeys and personal experiences, and hence traditional and chain F&B outlets may not benefit as much from this cycle of recovery. However, we anticipate that relaxation of cross-China border restrictions in the near future will prompt a short-term drop in overall retail demand, especially in the F&B sector, as local residents resume outbound travel."

Meanwhile, health and wellness brands are evolving and expanding their footprint in Hong Kong. The number of fitness centers, in particular 24-hour gyms, has grown exponentially since the pandemic. This fitness trend is expected to prevail in 2021 and into the years ahead (Table 4).

Furthermore, the new HK$5,000 electronic consumption voucher offer to each eligible Hong Kong permanent resident and new arrival aged 18 or above, totaling HK$36 billion, will boost the economy by 0.7 percentage points. Apart from stimulating the local consumption market, the scheme will also encourage smaller merchants, and consumers, to adopt e-payment channels. Mr. Lam continued, "With the registration starting on 4 July, we believe the scheme will give the market quite a positive boost for the rest of 2021. Together with the potential release of the cross-China border restrictions in the near future, we remain cautiously optimistic about the gradual recovery of the Hong Kong retail market."

Notes: All sq ft measurements refer to Net Floor Area (NFA). Availability includes confirmed leasing stock that is currently vacant or becoming vacant over the next 12 months.

Please click HERE to download the event photos and presentation deck.

Photo Caption

Photo1: (From Left to Right) Mr. John Siu, Cushman & Wakefield's Managing Director, Hong Kong and Mr. Kevin Lam, Cushman & Wakefield's Executive Director, Head of Retail Services, Hong Kong

Photo 2: (From Left to Right) Mr. Kevin Lam, Cushman & Wakefield's Executive Director, Head of Retail Services, Hong Kong and Mr. John Siu, Cushman & Wakefield's Managing Director, Hong Kong

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 50,000 employees in over 400 offices and 60 countries. Across Greater China, 22 offices are servicing the local market. The company won four of the top awards in the Euromoney Survey 2017, 2018 and 2020 in the categories of Overall, Agency Letting/Sales, Valuation and Research in China. In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit or follow us on LinkedIn (