Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer by value, says it’s “optimistic” about the city’s Central business area office market even after rents last year dropped the most since the 2008 credit crisis.
“We don’t have big renewals coming up, and we’re not seeing major tenants giving up large chunks of space,” Lo King-wai, general manager at the developer’s agency arm, said at a seminar hosted by Bloomberg in Hong Kong yesterday. “If demand comes back, then vacancy can be taken up very quickly.”
Banks and brokerages, faced with slowing corporate finance activity, have since last year given up space in Central for other districts, where rents can be two-thirds lower. As of January, financial services companies accounted for 49 percent of prime office tenants in Central, according to data compiled by CBRE Group Inc., the world’s biggest commercial realtor.
Central rents fell about 15 percent in 2012, the biggest full-year decline since 2008, according to figures compiled by Colliers International.
Even with the departures, occupancy at Sun Hung Kai’s two biggest Central office buildings, One and Two International Finance Centre, stand at 99 percent and 93 percent respectively, Lo said. The average vacancy rate in prime offices buildings in the district is now about 5 percent, Craig Shute, senior managing director at CBRE, said at yesterday’s briefing.
While banks have been shrinking, their space in the district may be taken over by expanding mainland Chinese companies and international retailers, Shute said.
“That’s the beauty of Central,” said Eric Wong, chairman of property investor Bricks & Mortar Management. “It’s always desirable for people who can make the biggest buck. As the banks start to shrink, you will see other people come in.”
New office supply in Hong Kong will fall about a third short of total new demand by 2020, CBRE said in a report in October.
Average office rents in Hong Kong will rise about 5 percent this year, said Sun Hung Kai’s Lo.
Office rents in Central, the second highest in the world according to Cushman & Wakefield Inc., will be little changed in 2013 as those elsewhere in the city will gain about 5 percent to 7 percent this year, said Karl Choi, Hong Kong-based analyst at Bank of America Corp.’s Merrill Lynch & Co. unit.