Recently, as the transaction volume in Hong Kong's commercial real estate market has increased, there are predictions that "it may have hit the bottom now." Foreign corporations based in Hong Kong are taking advantage of the lowered rental prices to expand their office spaces.
According to the Financial Times (FT) on the 1st (local time), global private equity firm General Atlantic, hedge fund Point72, and U.S. law firm Akin Gump have recently made plans to transfer to new offices located in downtown Hong Kong. FWD, an insurance company headquartered in Hong Kong, has signed a 10-year long-term lease for an office space of 330,000 square feet (30,658 square meters) in Taikoo Place.
The Hong Kong commercial real estate market has been struggling due to the exodus of foreign corporations following the COVID-19 pandemic and the implementation of the Hong Kong National Security Law in 2020. As of late last year, the vacancy rate for the highest-grade office buildings in Hong Kong reached a record high of 17.4%. Real estate consulting firm Cushman & Wakefield reported that the available office space for new leases in the 4th to 6th months of this year reached the highest level since 2019.
The change in atmosphere can be attributed to the recovery of the Hong Kong stock market and the influx of investments from China that had been stagnating after COVID-19. In just the first half of the year, the world's largest battery manufacturer, China's CATL, and the largest pharmaceutical company in China, Hongrui Pharmaceutical, listed on the Hong Kong stock market. More than 200 corporations have applied for listing on the Hong Kong stock market this year, and FT noted that the demand for premium office rentals from mainland Chinese corporations is expected to increase, bolstered by the stock market's boom.
Recently, China's leading social media platform Xiaohongshu has opened an office in Hong Kong covering 7,000 square feet (650 square meters). It is reported that Xiaohongshu also opened an office in Hong Kong in preparation for its listing on the Hong Kong stock exchange.
The drop in office rental prices due to oversupply has also affected the recovery of the real estate market. According to Cushman & Wakefield, as of June, the average monthly rent for prime offices in Hong Kong's financial district was about 90 Hong Kong dollars per square foot, a decrease of approximately 46% compared to 166 Hong Kong dollars in 2019.
Fiona Ngan of Colliers, a Hong Kong real estate brokerage, said, "Many tenants want to seize the opportunity while rental prices have hit the bottom, and if they can get offices in better locations at similar rents to now, they would likely think there is no reason not to upgrade by moving their offices."
As the commercial office market regains its vitality, the expectations of real estate corporations are also rising. Hongkong Land, a prominent real estate corporation in the Central area of Hong Kong, announced in its earnings report in July that "the rental prices for prime offices have begun to show signs of stabilization." Swire Properties, which successfully secured an office contract with FWD, also reported that inquiries for premium offices have "noticeably increased" in recent months.
Given that the downward trend in office rental prices is expected to continue for the time being, it is highly likely that the Hong Kong real estate market will maintain its vitality for a while. Ada Fung, head of the rental division at CBRE Hong Kong, said, "There remains room for rental prices to fall further due to vacancy pressures," predicting that the average rental prices for premium offices could drop by an additional 5 to 10% by the end of the year.