LI, Tao @ Hong Kong

Rentals for office space in the city are expected to rise by a further 15 to 20 percent this year after rebounding an average of 32 percent last year, as supply remains tight against robust demand amid stable economic growth, property consulting firm DTZ has forecast.

According to data provided by DTZ Tuesday, office rentals last year rebounded strongly from 2009 lows after a slump during the 2008 financial crisis. Grade-A office spaces saw a notable surge in rentals while the vacancy rate shrunk over the past year.

Rentals in the prime Central/Admiralty area surged 29.6 percent to an average HK$105 per square foot during the past year while rentals in sub-markets such as Sheung Wan and Wan Chai/Causeway Bay rose 22 percent and 36.7 percent, respectively, to HK$50 per square foot and HK$41 per square foot by the end of 2010.

Rentals in the Island East and Tsim Sha Tsui areas climbed 32.0 percent and 30.4 percent, respectively, to HK$33 per square foot and HK$30 per square foot by the year end, while Kowloon East recorded the fastest rental hike last year, surging 42.1 percent to HK$27 per square foot from HK$19 per square foot as of the end of 2010.

“By the last quarter of 2010, Island East and Kowloon East had surpassed their respective peak in 2008, and Wan Chai/Causeway Bay, Tsim Sha Tsui and Sheung Wan were getting close,” Mark Price, DTZ’s head of business space for Greater China, said during a press conference Tuesday. However, he noted that the overall rental situation in the Central/Admiralty area is still far below the previous peak.

Against the backdrop of buoyant market outlook and strong demand, Price forecast an upside of 15 to 20 percent this year for office rentals in the Central/Admiralty area and other districts on Hong Kong Island.

As rentals in most districts, except Central/Admiralty, are within 10 percent of their previous peaks, Price expects these districts will surpass their previous peaks in 2011.

“But the same may not apply to the prime Central/Admiralty area, especially its AAA-rated buildings, because of a larger distance from their previous peaks,” Price added.

In the second quarter of 2008, rentals in Central/Admiralty reached an average of HK$122 per square foot, with the AAA-rated office buildings setting a record high of HK$168 per square foot. The previous peaks are still 13.9 percent and 19.1 percent higher compared with the latest levels of HK$105 and HK$136 in 2010.

Even so, the large rental gap between those sub-markets and the prime Central/Admiralty area currently has justified many tenants’ exodus from the central business district (CBD) for the purposes of saving some money, according to Price. The increase in choice of locations in non-core districts, improved infrastructure and better office facilities have also supported decentralization for tenants who were resistant to rocketing CBD rentals.

Except for Island East, most districts have also shrunk their vacancy rate compared with a year ago, according to Alva To, DTZ’s head of consulting for Greater China. The overall office vacancy rate declined 3.2 percent to an average of 5.0 percent at end-2010 from the fourth quarter of 2009.

To said the rise in the vacancy rate in Island East was mainly due to the launch of new supply in the fourth quarter which pushed the district’s vacancy rate up 2 percentage points year-on-year to 7 percent from 2009.

He added that Island East, in fact, saw an impressive four-fold increase in take-up last quarter, as more new supply came to the market.

“But the overall 5.0 percent vacancy rate as of the fourth quarter is still higher than the 3.5 percent during the peak in 2008. The relatively higher vacancy in Island East, Tsimshatsui and Kowloon East, which are all above 5 percent, means more choices for location for occupiers,” said To.

China Daily

(HK Edition 01/12/2011 page2)

http://www.chinadaily.com.cn/hkedition/2011-01/12/content_11830894.htm