Office Rental Growth in Hong Kong Accelerates

According to Knight Frank Research, strong demand from the company sector and limited new office supply have ended in declining vacancy rates and accelerating office rental growth. The typical rent of Grade-A offices rose by 3.9% in August, after rising by 3.0% in July. The month-on-month rental growth in August was the fastest since April 2008. Among all districts, “Traditional Central” led the market during the last month with rents growing 7.7%, followed by 6.3% in Causeway Bay and 5.9% in Kowloon East.

Mr. Xavier Wong, Director and Head of study, Greater China, Knight Frank says “within the leasing market, we saw a great number of financial institutions and professional services firms scrambling for the limited spaces in core areas. The typical vacancy rate on Hong Kong Island dropped to a few.1 % in August from 3.5% three months earlier. Office availability have been particularly tight in Central, where there’s a lack of latest supply in 2010 and insist from financial sector was distinctly strong. Now we have identified 15 office buildings in Central with near-zero vacancy rates as of August.”

“a few landlords put their office premises up on the market amid the red-hot market,” says Mr Wong. “Price growth slowed slightly to one.3% over the last month, compared with 2.9% in July. Central led the market with a value growth of two.1%, followed by 2.0% in Causeway Bay and 1.6% in Sheung Wan. Office prices in Admiralty and Tsim Sha Tsui remained relatively stable in August. After rebounding 76.1% during the last 18 months, the typical Grade-A office price in Hong Kong in August was only 8.8% under its 2008 peak.”

A landmark transactions in August include the en-bloc acquisition of Bowa House in Tsim Sha Tsui by a neighborhood investor, for HK$280 million or HK$10,000 per sq ft. an entire floor in Bank of America Tower in Admiralty was sold for approximately HK$236 million or HK$16,980 per sq ft, whereas an entire floor in Lippo Centre within the same district changed hands for HK$195 million or HK$15,213 per sq ft.

Mr Wong concludes “considering the stronger-than-expected leasing demand, we’ve got revised our forecast of office rental growth in 2010 from 15% to twenty-five%. In 2011, the common rent is anticipated to rise by a touch less rapid rate of 20%, as a couple of office completions in Central, including the redevelopments of Dragon Seed Building, Luk Hoi Tung Building and Crocodile House, are due. By mid 2012, the typical Grade-A office rental is predicted to surpass the former peak recorded in May 2008.”

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