The Edge Singapore

Hong Kong, mainland China office-leasing outlook bleak: CBRE

- BY CHERYL ARCIBAL

The commercial property leasing market across most Asia-Pacific markets is improving, except in Hong Kong and mainland China where sentiment is particular­ly downbeat, according to CBRE.

While respondent­s in South Korea and Japan were the most positive at just under 40%, the sentiment was overwhelmi­ngly pessimisti­c for Hong Kong and mainland China at around –20%, according to a report by the property consultanc­y on March 19 that surveyed some 320 leasing market profession­als across the region.

“Mainland China and Hong Kong were the only markets to report negative sentiment, indicating that more time will be needed for these markets to recover,” the study said. “Half of the respondent­s expect rents and incentives to remain flat.”

Respondent­s in the mainland and Hong Kong also expect office rents to decline further.

The outlook for Hong Kong’s office sector looks bleak. The overall office vacancy rate in the city rose to 14.7% in the fourth quarter of 2023, edging up from 12.9% in the third quarter, according to Savills. The consultanc­y said it expects office rents to decline between 5% and 10% this year, owing to massive new supply coming on stream and uncertain demand.

On the mainland, the office sector is also likely to remain a tenant’s market this year, according to JLL.

There will be a glut of new office supply in major cities in the next two years, according to Cushman & Wakefield. Beijing, Shanghai, Shenzhen and Guangzhou are likely to see aggregate supply ranging from 500,000 sq m (5.4 million sq ft) to more than 1.22 million sq m this year.

Except for mainland China and Japan, most property markets in the region are grappling with high interest rates that are dampening investment demand. But the challenges in Hong Kong and mainland China were more acute owing to the property crisis facing mainland developers as well as the uncertain economic outlook.

Real estate investment in China fell 9.6% to RMB11.09 trillion ($2.07 trillion) last year, nearly the same as the previous year.

Hong Kong’s office property segment, besides feeling the pinch of higher interest rates that are at a more than two-decade high, is also vulnerable to the economic fluctuatio­ns in mainland China. In 2023, more than a fifth of the leasing volume in the city’s main business district of Central was from mainland Chinese companies.

The highest proportion­s of respondent­s looking to reduce both office costs and space were from mainland China and Hong Kong, according to CBRE.

The results are in line with a study by Colliers in September, which showed that more than a fifth of office tenants in Hong Kong were likely to downsize their space in the next two years, with some even looking to relocate.

The top three reasons for trimming their real estate footprint were rising costs, shrinking business demand and further implementa­tion of work-from-home policy, according to Colliers.

 ?? BLOOMBERG ?? Sentiment among property-leasing profession­als in Hong Kong and China is the poorest in Asia-Pacific, according to CBRE
BLOOMBERG Sentiment among property-leasing profession­als in Hong Kong and China is the poorest in Asia-Pacific, according to CBRE

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