Fading demand sees office vacancy rises for third consecutive month

HONG KONG, 18 February 2019 – With demand remaining subdued, vacancy in the city's Grade A office market rose for the third consecutive month, according to JLL's Property Market Monitor report released today.

The Grade A office market recorded negative net absorption of 178,200 sq ft in January as returning space arising from lease expiries outstripped demand; most notably in Central and Kowloon East with vacancy rates increasing to 2.3% and 10.3%, respectively.

Still, rising vacancy in Central did provide much needed room for tenants to grow with several banking and finance firms taking the opportunity to expand and upgrade their offices. In the most notable leasing deals, Aevitas Securities—an online securities trading platform provider—reportedly leased 13,300 sq ft at Cheung Kong Center to accommodate expansion plans while Folger Hill Asset Management upgraded their offices, leasing 7,600 sq ft at Man Yee Building.

Alex Barnes, Head of Markets at JLL, said: "Rental growth in the overall market slowed to just 0.3% month-on-month in January as vacancy rates rose in the city's traditional core-area office submarkets. Tsimshatsui posted the fastest growth for the second consecutive month, with rents rising 1.0% month-on-month against the tightest vacancy among the three core-area office precincts. Despite headwinds relating to the US/China trade war and slowing local economy, demand has remained consistent and transactional volume is set to increase post Chinese New Year."

Denis Ma, Head of Research at JLL, said: "With the uncertain economic outlook to weigh on office demand over the near-term, the market will face an uphill battle to backfill all of the estimated 2.4 million sq ft of office floor space that is set to return to the market in 2019. Against this backdrop, the ability for landlords to drive rental growth will weaken significantly. Still, given that vacancy rates remain at extremely low levels, we believe that rents will continue to be supported grow 0-5% in 2019."