Rise of ‘new economy’ firms underpins leasing activity in the Central office market

Grade A office market contracts in June as leasing demand remains subdued

July 17, 2019
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HONG KONG, 17 July 2019 – New lettings in the Grade A office leasing market dropped 63% m-o-m in June due as uncertainties in the economic outlook narrowed business growth, according to JLL’s latest Market Monitor report released today.

However, new lettings recorded in Central were supported by ‘new economy’ firms establishing new offices and seeking additional space to grow, including those engaged in the co-working and fintech fields. Victory Offices, an Australian-based co-working operator, reportedly leased 16,500 sq ft at The Center to set up their first centre in the city.

Denis Ma, head of research at JLL in Hong Kong, said: “The rally in cryptocurrencies and the granting of virtual banking licenses by the HKMA has led to an uptick in demand from the fintech sector in recent months. Whilst demand for Grade A office space from the sector remains modest, there is plenty of headroom for growth. At present, fintech firms account for less than 1% of the 37 million square feet of Grade A office space directly occupied by the banking and finance sector in Hong Kong.” 

Overall, the Grade A office market recorded negative net absorption of 139,500 sq ft in June. Rents in the overall market declined by 0.3% m-o-m as the uncertain outlook on leasing demand led to some landlords reducing rents to accelerate the backfilling of space vacated by decentralising tenants. Average rents in Central and Wanchai/Causeway Bay decreased by 0.3% m-o-m to HKD 130.0 per sq ft and 0.7% m-o-m to HKD 72.3 per sq ft, respectively.

Ken Tang, head of Kowloon Markets at JLL, said: “The completion of new modern Grade A offices in Kowloon East continues to draw tenants away from Tsimshatsui as they take advantage of the lower rents on offer and availability of space to accommodate the growth of their businesses. With rental gaps between Tsimshatsui and the decentralised areas in Kowloon unlikely to narrow through the remainder of this year, we expect this trend to continue.”

For instance, L.L.Bean, a US-based outdoor retailer, reportedly leased 11,800 sq ft at NEO in Kwun Tong while DuPont, a US-based chemicals company, leased 9,500 sq ft at China Life Center in Hung Hom; both relocating out of Tsimshatsui.

Grade A Office Vacancy

Period

Overall

Central

Wanchai /

Causeway Bay

Hong Kong East

Tsimshatsui

Kowloon East

End-June 19

5.4%

2.3%

3.2%

4.4%

3.1%

12.6%

End-May 19

4.9%

2.3%

2.9%

1.5%

3.1%

12.2%

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of US$16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.