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News Release

Hong Kong

Jones Lang LaSalle: Hong Kong Office Market Most Bullish Among Asian Countries


The economic rebound, improving sentiment, increased corporate expansion, and most importantly, a limited supply of Grade A office space has made Hong Kong one of the strongest rental growth markets so far in 2010 among other key countries in the Asia Pacific region, according to professional real estate services firm Jones Lang LaSalle.

Positive sentiment and improving economic fundamentals have resulted in increased corporate activity in Asia. Most notably in Hong Kong, where the limited supply of Grade A office space has made it the first growth market among the key cities in the Asia Pacific region in 2010 with a much higher degree of net take-up than was initially anticipated. In 1Q, over 900,000 sq ft (net) had been taken up in the city, representing over 90% of the original forecast net new take-up for the entire year.  The revised forecast is now expected to exceed 2 million sq ft for 2010.

“Of all the transactions handled by Jones Lang LaSalle in the first four months of the year, 38% of them were expanding businesses and new setups and 21% for new lettings, demonstrating an increased optimism among tenants in Hong Kong,” said Gavin Morgan, International Director and Head of Markets, Jones Lang LaSalle.

This robust take-up has led to a rise of 4.8% in overall rental in the office market, and is expected to drive a further rise of 10-15% within the year.  And in CBD locations like Central, rental is expected to go up by at least 20-25% in 2010.

While the Hong Kong commercial market is showing signs of health, the situation in other Asia Pacific regions varies.  In Shanghai, the overall citywide commercial market saw an increase of 4.1% in 1Q.  The Singapore market, after having seen very dramatic falls in rents over the past 15 months with a correction of 58%, finally appears to be bottoming now.  India also experienced a dramatic correction, at about 25-30% from the peak, although the drop is slowing down.   Japan office rental has dropped 40% from the peak in 2007, and is yet to bottom in the middle of 2010 before the rents should turn back to the rising trend in 2011. 

On the supply side, most of the key Asia markets except Hong Kong are still going to experience substantial oversupply in office space the next year or so.  For example, Shanghai’s decentralised Grade A market will add 13.2 million sq ft by 2014, driving up vacancy in non-CBD areas. In Singapore, the supply pipeline amounted to over 4.5 million sq ft from 2009-2012. Fortunately, the take-up is happening quicker than expected due to the low rental levels and a limited supply of quality space.  In India, the situation is much more extreme with 200 million sq ft of new spaced planned from 2009 through 2010.  Finally, Japan is expected to have the next supply wave in 2012.

Looking back at Hong Kong, what supports this city’s rental and differentiates the market from that of other Asian markets is probably the combination of stronger than expected demand and lack of core supply.  The total supply planned over the next five years is approximately 5.8 million sq ft (net), with only about 1.6 million sq ft (net) being delivered in the traditional core locations.

So far the Hong Kong commercial market is growing steadily leading the way in Asia and remains bullish, while Singapore, India and Japan are all lagging behind in different extents.  However, this growth may not be to Hong Kong’s advantage in the long term with supply in the CBD very limited.

“The supply drought in Central has the potential to limit Hong Kong’s competitiveness in Asia.  The lack of supply may encourage MNCs to other parts of Asia or Great China, specifically Shanghai, where supply is ample, rental are more affordable and where both large floor plates and green buildings are available,” commented Gavin Morgan.

“It’s clear that now Hong Kong is under pressure to free up sites for new commercial development. The consequences of not acting will be a supply constrained market with escalating costs, potentially pushing an expanding business community to consider other developing centres in the region.”