According to the latest report released by Knight Frank, sentiment in the office sales market improved slightly over the past month, following the reduction of borrowing costs by six foreign central banks. The People’s Bank of China also lowered the Reserve Requirement Ratio (RRR) by 50 basis points. As a result, about 180 office sales transactions were registered in November, a rise of approximately 60% from the previous month. However, the figure was still relatively low compared with the monthly average of over 260 for the first 11 months of the year.
Grade-A office prices edged down at a faster pace, decreasing 3.2% in November, compared with 2.3% in October. Causeway Bay witnessed the largest price drop of 3.7%, followed by Wan Chai and Sheung Wan, which both saw price falls of about 1.7%. Prices in Central and Admiralty remained stable during the month.
In the leasing market, the rental performances of core and non-core districts continued to diverge. Central and Admiralty saw rents drop by 2.6% and 2.3% respectively—the largest month-on-month declines since mid 2009. Non-core districts, however, were immune to the softening, given strong demand for relocation. Hung Hom led the market with a 3.3% rental growth, followed by 3.0% in Wan Chai and 2.5% in Quarry Bay.
Chinese firms became the major source of leasing demand in the Grade-A office market. China Galaxy International Securities, for instance, took up most of the 35th floor of Cosco Tower in Sheung Wan, a space totaling 16,500 sq ft. Meanwhile, Sino Gas leased two units on the 28th floor of Bank of America Tower in Admiralty, totaling 2,700 sq ft. With a number of major tenants moving out of the CBD, vacancy rates in Central rose to 3.0% in November, the highest level in the last 12 months. Conversely, vacancy levels in non-core districts remained low in November, as companies relocated from core areas and filled up the available spaces.
The joint offerings of currency swap lines by central banks and the lowering of the RRR by The People’s Bank of China is expected to temporarily lend support to the weak stock and property markets. However, the failure to agree a comprehensive debt solution at the recent European Union Summit means the crisis will continue to impact the economy as well as the local office market next year. Looking ahead, office demand in Hong Kong is expected to remain weak amid slow business expansion and limited new office set-ups. We forecast the current downtrend in Grade-A office rents will continue in 2012. Rent levels in Central may drop around 10–15%, although those in non-core areas are likely to remain firm over the next 12 months.