World’s costliest offices are poised to enter tenants’ market as Hong Kong businesses reel from coronavirus, protest movement

Hong Kong’s notoriously pricey office rental sector is fast becoming a tenants’ market as last year’s protest movement and the current coronavirus pandemic have prompted struggling companies to bail on their leases.

A huge increase in firms, from co-working space providers to finance companies and retailers, abandoning their offices before the contracts expire has helped free up space and contributed to a fall in rental rates.

“Given that real estate is one of the single largest costs in operating a business, particularly in Hong Kong, lease surrender cases are becoming more prevalent as a means to generate savings,” said Chris Cohen, a data analyst at Savvi, a Hong Kong-based data driven real estate platform founded in 2018 that specialises in office, off-market and lease surrender opportunities.

Office rents across the city have been falling hard this year, with vacancy rates in areas like Admiralty and Central soaring as the health crisis further saps demand already dented by months of social unrest. Many analysts see the situation worsening this year.

Companies that surrender space have typically overextended themselves through expansion or “are currently paying market-peak rentals in what is one of the world’s most expensive office markets,” said Cohen.

Firms that gave up office space this year were predominantly mainland Chinese ones and those whose businesses were hit particularly hard by the virus and last year’s social unrest, such as retailers, according to a real estate agent.

Sometimes the rental contract can be broken legally if tenant and landlord reach agreement on terms, which might include compensation.

“If their business or operation is affected, they will consider cost-saving exercises more seriously”, which may include surrendering some office space, the agent added.

“They either cut the size or move to cheaper places. Surrender means they would seek replacement [tenants] during the lease,” the agent added.

The number of so-called surrendered listings for Hong Kong office space in the first three months of 2020 was double that for the whole of last year, according to Savvi, which cooperates with landlords, agents and tenants to deliver property services in cities including New York, Singapore and Shanghai. Savvi says it has a network of more than 10,000 tenants, giving it access to a large amount of listing data.

Hong Kong Island alone has recorded 500,000 to 600,000 square feet of surrendered listings so far this year, almost twice the 250,000 to 350,000 sq ft during the whole of 2019, the company said. The 600,000 sq ft is equivalent to the size of 9.3 standard football pitches measuring 6,000 sq m each.

The amount of space vacated in the first three months has been almost 10 times the quantity in the same period last year by square footage, said Cohen.

“We anticipate a month-on-month increase of 20 to 30 per cent in surrender and upcoming lease listings ... for at least the next three months,” he added.

Reasons for surrender, which can release tenants from their existing lease obligations, include restructuring, downsizing, insolvency, merger and acquisition, or even expansion.

“It is also in pressing times, due in part to the months of social unrest and the current Covid-19, that businesses are forced to think outside the box,” Cohen said. “Landlords’ sentiment is also changing, and some are facilitating surrender cases within their portfolio, as a last resort.”

Since many surrender listings are also handled off-market or on a confidential basis, the jump may actually be greater than the figures suggest.

Recent cases of surrendered office space have been seen in some of Hong Kong’s busiest commercial zones, including Central, Admiralty, Tsim Sha Tsui and Causeway Bay.

Co-working operator WeWork last month surrendered 30,000 square feet on two floors at Hysan Place, Causeway Bay, and 120,000 square feet at The Gateway in Tsim Sha Tsui, according to market sources. WeWork was paying a monthly rate of about HK$100 (US$12.89) per sq ft at Hysan Place and about HK$60 per sq ft at The Gateway. The leases were only signed last year.

“At the moment, we are focusing on our top priority of ensuring members across the world have a safe workplace environment,” WeWork told the Post in an email last week, referring to the Covid-19 pandemic.

CreditEase, a fintech company from mainland China, surrendered its office in the International Financial Centre, measuring about 5,000 sq ft last month. It was leased at about HK$170 per sq ft, according to market sources. The lease was supposed to expire in the third quarter of 2021. CreditEase did not respond to repeated requests for comment.

“As the Covid-19 outbreak has been declared a pandemic, this will inevitably exacerbate market volatility and negative sentiment,” another agent. “The office market will be significantly dampened in the near term.”

The vacancy rate was the most serious in Admiralty at 6.1 per cent in February, the highest since April 2014, with almost one in five floors of Bank of America Tower empty, according to another real estate agency.

Average rents for offices in Admiralty sank 22.6 per cent on the year to HK$90.1 per sq ft in February, according to the real estate agency.

The average Hong Kong office rent will slide to HK$60.6 per sq ft in 2021, down 16.8 per cent from last year, as the market “transitions to a tenant-friendly” one, according to a report by an agency firm.

Rents in Central contracted by 3.2 per cent month-on-month to HK$116.1 per sq ft in February, the sharpest monthly decline since the financial crisis of 2008, agent said.

(South China Morning Post)

強拍申請1日批3宗 值逾21億

新冠肺炎疫情肆虐，使今季強拍審批進展緩慢。法庭昨日連環批出3宗強拍申請，共值逾21億元，其中由老牌發展商協成行申請強拍的筲箕灣東大街義德大廈，強拍底價為8.04億元。

由老牌發展商協成行申請強拍的筲箕灣東大街義德大廈，屬於8層高商住大廈，於1966年落成，項目佔地約7,680平方呎，屬於「住宅(甲類)」用途，可建住宅樓面約6.9萬平方呎。法庭批出強拍底價為8.04億元。

筲箕灣義德大廈 底價8億

另外，由深圳南瑞投資徐凱祥等相關人士提出強拍的尖沙咀金巴利道49至51號金興大廈，亦獲以底價6.525億元批出強拍令，預計可重建作商廈，以可建樓面約8.64萬平方呎計，每呎樓面地價約7,550元。

大鴻輝收購及申請強拍的上環德輔道西及西安里安慶樓，獲法庭頒下強制拍賣令，可建樓面約5.37萬平方呎，以拍賣底價7億元，每呎樓面約1.3萬元。

位於上環德輔道西326至332號及西安里11A至11D的安慶樓，現為1幢9層高商住舊樓，於1959年落成，佔地約6,172平方呎，發展商大鴻輝於多年前展開收購，並於2018年申請強拍，今獲法庭審議，最終以底價7億元頒下拍賣令。

地盤現劃為「住宅甲類」用途，若以8.7倍商住地積比計算，可建樓面約5.37萬平方呎，以拍賣底價計，每呎樓面地價約1.3萬元，預計可重建成1幢27至32層高商住樓宇，而發展商在項目周邊尚有多個收購地盤，估計有機會連同一併發展。

 (經濟日報)