Hong Kong Office MarketView

Transcription

1 Hong Kong Office MarketView Q Global Research and Consulting OVERALL HONG KONG Rents -0.3% q-o-q CENTRAL Rents -0.2% q-o-q HONG KONG ISLAND Rents -0.3% q-o-q KOWLOON Rents -0.4% q-o-q SOFTER DEMAND SPREADS TO DECENTRALISED AREAS 1 Hot Topics The leasing market remains lethargic due to weak overall demand. Activity across all districts has slowed, leading to negative net absorption in Hong Kong for the third consecutive quarter. Causeway Bay, the most active district in Q1 and Q2, saw a slump in demand as the impact of displaced demand from Sunning Plaza redevelopment faded. In Kowloon, the retail trade and sourcing sector remain active in taking space, with some expansion, although not enough to compensate for contraction in other sectors. Average vacancy for Hong Kong increased by 0.5% in Q3 to 4.. It is the highest level since Q While some landlords may be under more pressure as vacancy rises, it is only a slight relief for occupiers. Available space has been limited and vacancy reached a historic low level at the end of last year. Overall Hong Kong rents have witnessed small movement in rents this year. Rentals across districts, however, have performed in contrast. Rents in the core areas remain on a downtrend, while rental growth in decentralised districts have decelerated. Landlords more flexible Some landlords have turned more cautious during the quarter. This comes on the back of sluggish demand coupled with current and/or future vacancies rising in some buildings. This is not only confined to Central, but also some buildings in Tsim Sha Tsui and Kowloon East. There have been cases of landlords becoming more flexible on lease terms to lease vacant space. Some landlords are also negotiating renewals one year in advance to retain existing tenants. Relocation incentives begin to fade Large occupiers remain cost conscious and the scarcity of options above 30,000 sq ft has led to slower activity. Rents across all districts are converging and the incentive to relocate is often greatly diminished when capex costs are taken into account. The focus for these tenants continues to be on renewals and consolidation. Smaller deals to the fore While the market for large occupiers has been quiet, the focus of activity has shifted to tenants under 10,000 sq ft. In the core areas, sluggish demand has translated into very few large transactions. Most of the new lettings have been for pocket spaces. In decentralised districts, limited availability of large space, rather than the lack of demand, has restricted the number of big transactions. Smaller occupiers are more flexible and mobile due to relatively lower rental and capex costs, and are therefore more active. As a result, some landlords have become more willing to subdivide vacant space in order to meet this demand. Chart of the Quarter Leasing dominated by tenants<10,000 sq ft Number of transactions 35% 2013YTD 5 0-5,000 5,001-10,000 10,001-15,000 15,001-20,000 20,001-25,000 > 25,001

2 Percentage of stock Thousands Q Hong Kong Office MarketView 2 HONG KONG ISLAND ACTIVITY SLOW ACROSS ALL DISTRICTS Weaker demand is not just confined to Central Demand in Central remains subdued, inhibiting the number of transactions. Most of the leasing activity this quarter, and indeed this year, was for space of less than 10,000 sq ft. The net effect has been negative on absorption and some large vacant spaces have experienced very slow rates of take up. Some landlords recognise this and have become more accommodating in subdividing space. The biggest letting this quarter was completed by a serviced office operation, which took up a floor of 14,000 sq ft in Citibank Plaza. Mainland Chinese firms continued to take up space, but are also of smaller size. For example, a mainland Chinese company took up 2,500 sq ft in Two IFC, and another leased 3,000 sq ft in CCB Tower. Activity beyond Central also remains lethargic. In Causeway Bay, the surge of activity has decelerated after all Sunning Plaza tenants have found alternative space. The only notable transaction was for LinkedIn, who leased the only remaining floor of over 16,000 sq ft in Hysan Place. In decentralised districts, the shortage of available space, in addition to the lack of demand, has reduced the volume of transactions. The incentive for occupiers in decentralised areas to relocate to Kowloon is also becoming weaker given converging rents. The average vacancy on Hong Kong Island increased slightly by 0.4% in Q3 to 4.2% and have been largely stable this year. In Central, vacancy was stable at 5.2% and unchanged y-o-y. Causeway Bay vacancy fell by 0.6% in Q3 to 3.4%, its lowest rate since Q4 2008, after Hysan Place reached full occupancy. In Hong Kong East and North Point, vacancies remain tight at 1.5% and 1. respectively. Rents are largely flat and are unlikely to show a significant improvement this year Hong Kong Island witnessed just a small movement in average rent this quarter and this has been largely flat yearto-date. Rents in Core and Fringe Core areas continued to moderate as demand remains weak. In Causeway Bay, rental growth decelerated considerably from a 9.2% surge in the previous quarter to only a 0.5% increase in Q3 as the level of activity dropped. The overall lack of demand has reduced decentralised rental growth to only 0.3% q-o-q, the lowest quarterly rate since Q Weaknesses in the Core and Fringe Core areas are expected to remain for the remainder of the year and possibly carrying over to next year. Vacancies are likely to remain high as demand is yet to recover, keeping the pressure on for some landlords. In other districts, lackluster overall demand could continue to hinder rental growth. Hong Kong Island Net Absorption Thousand sq ft Core Fringe Core Midtown Decentralised Hong Kong Island Vacancy Rate 1 8% 6% 4% 2% Hong Kong Island Rental Growth Q-o-q % change Core Fringe Core Midtown Decentralised Hong Kong Island Supply Pipeline 4% 2% To end 2014 To end 2016 Core Fringe Midtown Decentralised Core Fringe Core Midtown Decentralised

3 Percentage of stock 3 KOWLOON WEAKNESS IN SOME AREAS CAUSED BY SUBDUED DEMAND Kowloon Net Absorption 1,800 1, Thousand sq ft Kowloon Vacancy Rate Kowloon Rental Growth Kowloon Supply Pipeline Core Fringe Core Kowloon East Decentralised Q-o-q % change Core Fringe Core Kowloon East Decentralised To end 2014 To end 2016 Core Fringe Kowloon East Decentralised Core Fringe Core Kowloon East Decentralised Kowloon now suffers from weaker demand too!! Net absorption in Kowloon was negative for the fourth consecutive quarter in Q3. In the previous quarters, this reflected the lack of available options for occupiers. A weaker level of demand, however, is now clearly contributing significantly to negative net absorption. Occupiers remain cost conscious and face a challenge when seeking large contiguous options, particularly at cost effective rents. As a result, we continue to see some occupiers seeking to purchase space for self-use. Despite subdued overall demand, the retail and sourcing sectors continued to drive activity. They remain active in seeking and taking space for expansion and/or upgrade when suitable space becomes available: Polo Ralph Lauren Sourcing, Zara, and Estee Lauder have all expanded in The Gateway; in China Hong Kong City, 7,700 sq ft was taken up by sourcing firm Wolverine World Wide who will relocate and expand from The Gateway; Amer Sports Sourcing leased 8,000 sq ft in Miramar Tower and will relocate and expand from World Commerce Centre. However, this activity is not exclusive to Tsim Sha Tsui tenants: Hamleys Asia relocated and expanded from Kowloon East to Tsim Sha Tsui East. Slightly higher vacancy but large vacant spaces are still scarce Kowloon vacancy continued to creep up slightly with a 0.6% increase in Q3. Average vacancy has increased 2. y-o-y to 3.7% since reaching a historical low level in Q This somewhat alleviates the acute shortage of supply. The challenge remains, however, for occupiers seeking large space. The number of buildings with net contiguous space of above 20,000 sq ft increased slightly from only two buildings in Q2, but is still insufficient at 3 buildings. The average Kowloon rent contracted slightly for the second consecutive quarter. This was due to Tsim Sha Tsui and Kowloon East rents falling 1.6% and 0.7% respectively. Rents continued to moderate in some buildings with high vacancies. Going forward, rents are expected to remain flat for the remainder of this year. Landlords of buildings with large current and/or future vacancies are expected to remain under pressure and are likely to be more flexible on renewals to retain tenants. The appetite for cost effective space is likely to continue to drive rental growth in decentralised areas. In particular, revitalised buildings in the pipeline could attract attention for large occupiers given the lack of large contiguous space. Q Hong Kong Office MarketView 3

4 Q Hong Kong Office MarketView HONG KONG ISLAND KEY MARKET DATA Core - Central ; Fringe Core - Sheung Wan, Admiralty; Midtown Wan Chai, Causeway Bay; Decentralised - North Point, Hong Kong East Selected leasing transactions in Q Property District Size (sf net) Tenant Citibank Plaza Citibank Tower Central 12,000 Compass Offices Nexxus Building Central 9,400 Mandatory Provident Fund Scheme Authority 28 Hennessy Road Wan Chai 8,800 Shenyin Wanguo (H.K.) Ltd Selected office supply Property District Size (sf net) Expected date of completion Exchange Square The Forum Offices [pre-leased] Central 40,000 Q Des Voeux Road Central Central 65,000 Q Cannon Street Causeway Bay 173,000 Q Sub-market key stats 4 Area Vacancy rate (% stock) Rent (HK$ psf) Central Admiralty Sheung Wan Wan Chai Causeway Bay Hong Kong East North Point

5 KOWLOON KEY MARKET DATA Q Hong Kong Office MarketView Core - Tsim Sha Tsui ; Fringe Core - Tsim Sha Tsui East, Jordan, Mongkok, Hunghom; Kowloon East Kowloon East; Decentralised San Po Kong, Kowloon Tong, Kwai Chung & Tsuen Wan, Cheung Sha Wan, Sheung Shui, Tung Chung, Shatin Selected leasing transactions in Q Property District Size (sf net) Tenant Langham Place Mongkok 12,800 FrieslandCampina (Hong Kong) Ltd Kowloon Commerce Centre, Tower B Kwai Chung & Tsuen Wan 8,402 Maquet Hong Kong Ltd Miramar Tower Tsim Sha Tsui 8,400 Lidl Hong Kong Ltd Selected office supply Property District Size (sf net) Expected date of completion 6 Wang Kwong Road Kowloon East 198,000 Q Hoi Bun Road Kowloon East 237,000 Q Rykaden Capital Tower Kowloon East 173,000 Q Sub-market key stats Area Vacancy rate (% stock) Rent (HK$ psf) Tsim Sha Tsui Tsim Sha Tsui East Kowloon East Mongkok Hunghom Cheung Sha Wan Kwai Chung & Tsuen Wan

6 Q Hong Kong Office MarketView CONTACTS For more information about this Hong Kong MarketView, please contact: Edward Farrelly Senior Director t: e: Roy Ng Senior Analyst t: e: Rosanna Tang Associate Director t: e: For more information about opportunities in the Hong Kong office market, please contact: Rhodri James Executive Director t: e: James McLean Executive Director t: e: John Davies Executive Director Suites & 14, 12/F, Tower 6 The Gateway, 9 Canton Road Tsim Sha Tsui, Kowloon, Hong Kong t: e: john.davies@cbre.com.hk + FOLLOW US GOOGLE+ FACEBOOK TWITTER Global Research and Consulting This report was prepared by the Team which forms part of Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 6 Disclaimer 2013 Limited. Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of.