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News from Knight Frank Hong Kong

Hong Kong set to retain title as world’s most expensive office market in 2019

28 February 2019

Melbourne and Sydney will see the largest rental growth in 2019 with rents rising 10.1% and 8.6% respectively. Both are experiencing tight supply in their office markets due to employment growth and relatively low levels of development completions in recent years.

The Global Outlook Report found that while all cities are feeling the impact of slower economic growth and geo-political risks, some are benefiting from robust demand from tech firms for business space. This is coinciding with fewer major developments reaching completion, as the uncertain political environment has deterred some developers from building in recent years. This is squeezing supply and pushing up rents.

Although Hong Kong continues to lead the world’s prime office rental table in 2019, as David Ji, Director and Head of Research and Consultancy, Greater China points out, there are already signs of market softening since last November, the first time in 29 months. An uncertain China-US trade relationship and Mainland’s own market challenges have curtailed demands from some Mainland firms for prime office space. That said, as Hong Kong continues to enjoy closer relationship with the Mainland, the fact backed by record number of IPO cases witnessed in the city, the market will find support for prime rents falling not too far away from its peak. We expect therefore, that the rents on the Hong Kong Island will fall only 1-4% this year. Meanwhile, Central rent is expected to drop between 4-7%.

William Beardmore-Gray, Head of Occupier Services and Commercial Agency, Knight Frank commented: “Occupiers face two contradictory pressures in 2019. The geo-political threats, like Brexit and the US/China trade war, make it difficult for firms to plan the future. However, business pressures to expand market share, recruit talent and enter new markets, are pushing them to address their property needs. Limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter the market in 2019, and acquire space before someone else takes their preferred option for a future headquarters building.”

James Roberts, Chief Economist, Knight Frank commented: “We believe there is a compelling global case for continued rental growth across the global cities. Tight development pipelines over several years have created leasing supply crunches, particularly for offices and logistics property. This is coinciding with stronger occupier demand, particularly from the fast growing tech sector. We expect these improving expectations on rental growth to give more investors the confidence to make leveraged buys particularly given the supply problems found across global occupier markets.”