Hong Kong office rental rates grow strongly

Nery Alaev writes about Hong Kong’s commercial real estate environment.

A major real estate consultancy has released statistics that point towards impressive growth of rental rates for ‘A1’ office property in the eastern Asian city-state. I’ve decided to look into this growth and compare it to other global success stories.

Four-year high

Hong Kong

In January 2016, the rental rate for premium office space in Hong Kong grew by 3.1% compared to the previous month. This is the largest monthly advance since May 2011, nearly five years ago.

This is according to data from Jones Lang Lasalle (JLL), in its ‘Hong Kong Property Market Monitor’.

‘Mainland’ (People’s Republic of China) corporates drove growth in the city’s prime office market, similar to 2015 where they helped Hong Kong’s grade ‘A’ office rents grow by over 13%.

Hong Kong was followed by Pacific neighbours Sydney in regards to office rental change in 2015, according to JLL. The city is behind US tech boomtown San Francisco, its neighbour Oakland and other cities such as Dublin and Stockholm.

Mainland assistance

Alex Barnes, Head of Hong Kong Markets at JLL, said:

„Demand levels have remained broadly constant despite stock market fluctuations. We continue to see steady demand from PRC firms, particularly in Central. 

We believe this will continue through 2016 as the typical footprint of PRC firms is small, relative to the existing business base in Hong Kong. We expect the rents in Central to grow a further 5-10% this year.“

The comment clearly points toward mainland demand for premium office space in Hong Kong.

Further to this, Dennis Ma, Head of Research, said:

„The strong start to the year for the city’s Grade ‘A’ office market even as a number of banks announced staff cuts underscores just how challenging it has become for tenants looking to secure premium office space in the city.

With a number of mainland corporates still actively seeking to set-up and expand operations and the amount of backfilling (i.e. shadow space) in Central at its lowest level in five years, we expect rents to be well supported over the coming year.“

Mr. Ma’s comment shows that the macroeconomic environment (China’s struggling economy, political tension in Hong Kong) isn’t necessarily effecting demand.

Nery Alaev

Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.