Cushman & Wakefield expects HK office rent to fall by 7-9% and T1 street-level store rent to rise by up to 5% in 2024. Financial News

John Siu, Managing Director at Cushman & Wakefield Hong Kong, said total net take-up of Grade A offices in 2Q24 was positive 318,000 sq m, leading to positive net take-up of approximately 580,000 sq m in 1H24. In terms of new leasing activity, 964,500 square meters of new letting space was recorded in T224, an increase of around 70% from last year, with Kowloon East and Central holding the largest share, accounting for 33% and, respectively, 22%.

Looking ahead to 2H24, Siu expected the pace of office leasing to be similar to 1H24, with businesses still focusing on cost control and the market taking some time to absorb available rental space in the face of sufficient supply. Office rents will therefore continue to be under pressure throughout the year. The firm maintained its initial forecast of annual rent decline of 7-9%.

Kevin Lam, executive director, head of retail services at Cushman & Wakefield Hong Kong, noted that with the changing consumption patterns of Chinese visitors and the tendency for Hong Kong residents to spend money on the mainland, which, at in turn undermined local consumption, the total value of local retail sales from January to May this year fell by 6.1% year-on-year. However, the overall vacancy rate for ground-level retail outlets remained largely stable, with higher visitor and pedestrian flows in Tsim Sha Tsui supporting a 1.2ppt YoY vacancy rate decline to 10.6%, while vacancies at Causeway Bay (2.6%), Central (7.0%) and Mong Kok (11.1%) remained flat quarter-on-quarter.

Along with the steady increase in visitor arrivals, prime street-level rents in various districts also saw low single-digit growth ToT, with Tsim Sha Tsui, the most popular district among tourists, recording the most notable increases of 2.8% QoT and 3.9% YoY, followed by Central, which is supported by high-end tourists and local consumption, with quarterly rent growth of 2.7%. On food and beverage leases, local operators were generally cautious, with Causeway Bay and Central growing by 3% QoQ, while Tsim Sha Tsui and Mong Kok saw slight growth of less than 1%.

Lam expected prime street-level rents across all districts to rise 0-5% in 2H24. In terms of leasing activity, although some international brands took advantage of the lease reversal to open stores in central districts during the quarter, they are believed to remain cautious in their approach and leasing demand in 2H will continue to be dominated by domestic retail and food and beverage brands.

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