11/8/2016

Market Update Summary - 2nd Quarter 2016

Market Update Summary - 2nd Quarter 2016

In Q2 2016, leasing demand in Central was driven by expansion requirements from the banking and finance sector. Notable transactions included Julius Baer expanding into a whole floor at Two Exchange Square and Bank of Singapore leasing 11,200 sq ft at Three Exchange Square. Most of these transactions, however, were negotiated on space not immediately available, hence net take-up in Central for the month amounted to just 17,000 sq ft.

Lease expiries and the decision by China Life Insurance to return 187,500 sq ft of space at their newly acquired One HarbourGate West Tower to the leasing market resulted in the Grade A office market posting a net withdrawal of 212,700 sq ft in June; the greatest amount in a month since December 2013.

The impact of Manulife’s lease expiry at Manulife Financial Centre in Kwun Tong and on the Kowloon East office market was offset by the landlord’s ability to back-fill the bulk of the space as well as Avnet Technology’s relocation to Enterprise Square 5 (67,800 sq ft, gross) in Kowloon Bay. As a result, net take-up in Kowloon East returned to positive territory in June, amounting to 37,600 sq ft.

Having just secured a lease at Tower 535 in the previous month, US-based co-working space operator, WeWork, enlarged its footprint in the city further by committing to about 59,500 sq ft (gross) at Asia Orient Tower in Wanchai.

A tight vacancy environment continued to curb leasing activity with the total number of new lettings in Central dropping 55% m-o-m in June. Against this backdrop, Central rents edged up by 0.6% m-o-m to reach their highest level since the Global Financial Crisis. Meanwhile, rents in Kowloon East remained broadly stable as increasing supply side competition restricted the ability of landlords to push rents higher.

The government announced that it would release a commercial site (NKIL 6557) in the Kai Tak Development Area (KTDA) and a business site (AIL 452) in Wong Chuk Hang for sale via public tender in 3Q16. Located near the future Kai Tak MTR station along the Shatin to Central Link, NKIL 6557 has a maximum developable GFA of 1.1 million sq ft. The site is the first to be tendered within the KTDA, which is envisioned to provide at least 10 million sq ft of office floor space.

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