Market Update Summary - February 2017

Despite a slowdown in leasing activity around the Chinese New Year holidays, net take-up in the overall market still amounted to 54,300 sq ft in January on the back of consolidation and/or relocation requirements. In one of the more notable transactions, Alibaba leased about 92,000 sq ft (gross) at Times Square in Causeway Bay to house their newly acquired media arm South China Morning Post.

In Central, the occupier market returned to growth with net take-up amounting to 45,100 sq ft as PRC financial services firms expanded and set up new offices. China Huarong, for example, expanded into Three Garden Road (about 9,000 sq ft, lettable) whilst Guangzhou-based asset manager SFUND leased a whole floor (9,400sq ft, lettable) at Bank of China Tower for its newly established operations in the city.

Tenant decentralisation gathered pace amid a widening rental gap between core and non-core office areas. A US financial services firm is relocating from Central to Taikoo Place whilst Freshfields Bruckaus Deringer reportedly has leased two floors at One Island East; which, if transacted, would mark the first UK ‘ Magic Circle’law firm to move out of Central.

The opening of the new South Island MTR line continues to stoke tenant interest in Wong Chuk Hang. Valentino leased 1.5 floors at 41 Heung Yip Road whilst Mayer Brown JSM is moving its back office to a whole floor at the same building from Central.

Limited availability and sustained PRC demand saw rents in Central climb 1.3% m-o-m, closing in on their pre-GFC record highs set in 2008. Meanwhile, rents in other major office submarkets, with the exception of Kowloon East, also trended higher against a tight vacancy environment.

In his 2017 Policy Address, the Chief Executive announced a number of initiatives to increase the commercial floor area in Kowloon East by 50.6 million sq ft, including increasing the development intensity in the Kai Tak Development Area over two phases.

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