Recently, Bloomberg reported on the Hong Kong real estate market, highlighting how Li Ka-shing’s Cheung Kong Center has become a symbol of the struggles in the office market.
According to the report, Cheung Kong Center, owned by CK Asset Holdings, has seen a vacancy rate of around 25% in the past year, with its second phase leasing out only 10% of the available space nearby. This predicament faced by the Li family’s premier property reflects the long-standing weakness in the Hong Kong office market.
In addition, opposite the second phase of Cheung Kong Center, Henderson Land’s new office tower still has a vacancy rate of 40%. Henderson Land has recently started accepting leases for smaller office spaces to fill up this 36-story building, deviating from its usual practice of announcing full-floor leasing deals. Even the resilient International Finance Centre Phase 1 and Phase 2 in Central have vacancy rates of 5.5% and 3.3% respectively, a far cry from the 100% occupancy rates seen in May last year.
Bloomberg notes that attracting tenants for new office buildings across Hong Kong has become increasingly challenging. Data from CBRE Group indicates that in the first quarter, most new commercial office spaces had a leasing rate of less than 50%. Furthermore, an additional 709,000 square feet of new office spaces, equivalent to about nine football fields, are set to be completed in the second to fourth quarters of this year.
CBRE data also reveals that the vacancy rate in Hong Kong’s commercial offices rose to a historic high of 16.7% in the first quarter. Office rental prices have fallen by 35% from their peak in 2019.
Li Zeju, Chairman and CEO of CK Hutchison Holdings, recently expressed confidence in the future of Cheung Kong Center Phase 2, stating that there is not a high immediate demand for office space, but remains optimistic about the premium sea-view office supply in Central.
Alex Barnes, Managing Director of Hong Kong and Macau at JLL, pointed out that the increased supply has intensified competition, leading property owners to be more willing to compromise as tenants gain more negotiating power in lease terms and conditions. JLL predicts a 5% drop in Hong Kong office rents this year.
Apart from the rising supply, cost-cutting measures by international banks and a lack of trading activities among investment banks have prompted some financial firms to reduce their office spaces. Even Chinese enterprises, once the most eager tenants for high-end offices in Hong Kong, are now less eager to move in. Data from JLL indicates that Chinese companies only accounted for 8% of new tenants in the first quarter.
Overall, the Hong Kong office market is facing unprecedented challenges, and stakeholders are adapting to a changing landscape where supply and demand dynamics have shifted dramatically.