Office market hit by slump and uncertainty
Saturday, January 5, 2002
DORIS CHAN
Global economic uncertainty and its negative impact on growth put great pressure on the office sector last year, leading to office space standing empty in core areas and substantial falls in rents and capital values.
Property consultants believe office rents will drop a further 10 to 15 per cent this year although China's entry to the World Trade Organisation (WTO) should boost the economy in the long term.
Dao Heng Securities property analyst Eric Yuen said the downward trend of office rents would continue in the first half of the year because of weak demand and growing fear of global economic recession.
He said the office sector had remained sluggish in the past two months because many lease transactions absorbed only existing vacant office space.
Office rents were in a downward trend in the first three quarters of last year due to weak demand and the rising number of broken leases. The commercial market further deteriorated after the September terrorist attacks in the United States because many companies deferred expansion plans.
Fewer transactions were recorded in the fourth quarter because of economic recession concerns. The office market reported a negative take-up of 600,000 square feet last year, of which 400,000 was in Central and Admiralty.
According to Cushman & Wakefield, rents in key office markets in Hong Kong had dropped by up to 30 per cent since the beginning of last year.
The property consultant expected to see a further rise in vacancy rates in non-core areas such as Tsim Sha Tsui after the Lunar New Year holiday next month due to a dramatic reduction in office demand from the financial-services sector and other industries, including import and export traders.
CB Richard Ellis Hong Kong managing director Kenneth Ng said office rents would further decrease by up to 15 per cent this year as more than 640,000 sq ft of grade-A office space came on to the market in prime areas and break-lease space increased.
DTZ Debenham Tie Leung research director Alva To Yu-hung said the office market was unlikely to pick up until the second half of this year.
"The office sector is very sensitive to economic and political tumult. Many corporations would rather put expansion plans on hold or refuse to make the decision now in view of the weak economic situation worldwide," Mr To said.
He expected office rents to slide about 5 to 10 per cent this year. Mr To hoped office rents in Hong Kong would benefit from China's WTO accession in the long term with the relocation and expansion of multinational companies. But companies might also consider other regional or international headquarters, creating a further challenge for Hong Kong's office sector.
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