Hong Kong office landlords are increasingly in a “defensive” position amid a supply glut that is driving tenants to upgrade to better and cheaper locations and facilities, according to analysts.
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“The flight to quality of existing tenants within Hong Kong is absolutely going to continue with all the new supply coming in the next three to four years,” said Sam Gourlay, head of office listing advisory at JLL in Hong Kong. “We will see downward rental pressure on grade B and grade A-minus office space. Our forecast is a 5 to 10 per cent decline in office rents this year.”
Some 3 million sq ft of new premium office space is expected to enter the market in coming months – the biggest net increase in supply in 17 years. Sun Hung Kai Properties’ International Gateway Centre project in West Kowloon will contribute 2.6 million sq ft of that.
Given the many options available to office tenants, landlords have been extending incentives to keep them or help them relocate within their properties, Gourlay said. Office vacancy rates were projected to rise, he said.
Flight to quality meant different things to different firms, he said, including better transport connectivity, improved ESG (environmental, social and governance) partnerships with landlords and larger floor plates.
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Incentives landlords are offering include lower rents and lower capital expenditures for new office fit-outs.
In Central, law firm Holman Fenwick William (HFW) relocated to a 22,000 sq ft space in Alexandra House this month, leaving its office in Lippo Centre in Admiralty after 30 years. It was one of the largest office leasing deals in the city’s main business zone in the past 12 months, according to developer and landlord Hongkong Land.