MARKETBEAT

Office Snapshot Q2 2017

Hong Kong

HONG KONG OFFICE Economy

The economy continued to perform well, increasing 4.3% y-o-y in
Economic Indicators Q1. External demand strengthened, in particular in the trading
12-Month
Q4 16 Q1 17 sector where exports grew 10.3% y-o-y. Domestic demand also
Forecast
held up with solid private consumption growth of 3.7% y-o-y and
GDP Growth 3.2% 4.3% unemployment rate remained stable at 3.2%. CPI remained
CPI Growth 1.2% 0.5% relatively stable throughout the quarter.
Unemployment Rate 3.3% 3.2%
Market Overview
Source: Hong Kong Census and Statistics Department, Oxford Economics In Q2, average monthly rent in Greater Central advanced 2.9% q-
o-q and reached a record HKD 126.0 psf, surpassing the previous
Grade A CBD Market Indicators high set just prior to the Global Financial Crisis. Growth was
12-Month underpinned by rental increases in Prime Central (up 1.8% q-o-q),
Q1 17 Q2 17
Forecast where leasing activity was driven by expansion requirements from
Overall Rent (HK$/SF/MO) $122.5 $126.0 PRC corporates. HNA Group expanded in Three Exchange
Square (93,600 sf), while Huarong leased 18,700 sf at Two Pacific
Availability 3.6% 3.3% Place. As a result, the availability rate in Prime Central tightened
from 2.8% in Q1 to 2.2% in Q2.
Overall Grade A Rent & Availability
Outside Central, leasing activity was underpinned by cost-saving
$82 8 relocation requirements, especially in upcoming Grade A office
buildings. Lee Garden Three, set to be completed in Q4, in
$80 7 Causeway Way was the biggest beneficiary with about 79,000 sf
Availability Rate (%)
Rent (HKD/sf/mo)

pre-committed by a global advisory firm and two regional banks.

$78 6 Meanwhile, tenants continued to favor decentralized office areas
with a handful opting to relocate to non-Grade A office buildings.
For example, AXA leased about 52,700 sf in 38 Southside in
$76 5
Wong Chuk Hang, while Triumph International moved to Centre
Parc, a new industrial refurbishment project in Kowloon Bay.
$74 4
During the quarter, 41 Heung Yip Road in Wong Chuk Hang was
$72 3 the best performing building in terms of net absorption after 63,300
sf was leased by two quasi-government bodies that relocated from
Central and Hong Kong East, respectively. Against this backdrop,
the availability rate in Hong Kong South dropped to 9.3%, down
Overall Rent Overall Availability Rate (%)
from 14.0% in Q1. Net absorption for the overall market amounted
to just 141,000 sf in Q2, compared to growth of 416,300 in Q1, as
Supply Pipeline several whole floors were returned to the market.
MSF(Net)
3.0
10-year Historical Annual Average = 1.5 million sf
Outlook
The pace of decentralization is likely to pick up as the rental gap
2.5 between core and decentralized office areas widens. Rent in
Greater Central is expected to climb 58% on average for the full
2.0 year on tight availability and no new supply scheduled in the
submarket before 2022 (when the Murray Road Carpark
1.5 development, which was sold via government tender in May, is
expected to be completed). By contrast, landlords in Kowloon East
1.0 are likely to come under increasing downward rental pressure
against mounting supply as 1.8 million sf of Grade A office space
0.5 is slated to enter the market in 2H17. Leasing activity is likely to be
largely focused on upcoming Grade A office buildings. A global
0.0 insurer, for example, reportedly is close to pre-leasing two floors at
2017 2018 2019 2020 2021 an upcoming office development in Quarry Bay.

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 MARKETBEAT

Office Snapshot Q2 2017

Hong Kong

UNDER
INVENTORY GRADE A NET EFFECTIVE RENT
SUBMARKET AVAILABILITY CONSTRUCTION
(SF NET)
(SF NET) HK$/SF/MO US$/SF/MO EUR/SF/MO

Prime Central 7,533,869 2.2% 0 139.2 US$17.8 15.9

Greater Central (CBD) 15,439,224 3.3% 0 126.0 US$16.2 14.4

Wan Chai / Causeway Bay 8,808,583 3.8% 500,500 75.7 US$9.7 8.7

Hong Kong East 7,377,143 3.5% 2,141,300 47.8 US$6.1 5.5

Hong Kong South 2,003,846 9.3% 306,000 31.1 US$4.0 3.6

Hong Kong Island Total 33,628,795 3.8% 2,968,000 86.5 US$11.1 9.9

Greater Tsimshatsui 9,4201,875 7.5% 395,400 66.9 US$8.6 7.6

Kowloon East 11,845,542 9.8% 3,074,600 29.7 US$3.8 3.4

Kowloon West 3,694,393 6.8% 238,500 41.2 US$5.3 4.7

Kowloon Total 24,941,809 8.5% 3,716,700 42.4 US$5.4 4.8

Overall Total 58,570,605 5.8% 6,684,700 80.1 US$10.3 9.2

*Grade A Net Effective Rent is exclusive of service charges and government rates and based on net area. US$/HK$ = 7.7969 /HK$ = 8.7526 as at 12 June 2017

Key Leasing Transactions Q2 2017

PROPERTY SUBMARKET TENANT SF LEASE TYPE

Three Exchange Square Greater Central HNA Group 93,600 Expansion

41 Heung Yip Road Hong Kong South Independent Insurance Authority 45,200 New set-up

Lee Garden Three Wanchai / Causeway Bay Willis Towers Watson 40,000 Relocation

Atelier K11 Greater Tsimshatsui Taipei Fubon Bank 20,700 Relocation

Two Pacific Place Greater Central Huarong 18,700 Expansion

Significant Projects Under Construction

PROPERTY SUBMARKET DEVELOPER SF COMPLETION DATE

18 King Wah Road Hong Kong East Henderson Land 239,600 Q3 2017

Kingston Financial Centre Kowloon East Swire Properties 436,100 Q3 2017

Mapletree Bay Point Kowloon East Mapletree 546,800 Q4 2017

Atelier K11 Greater Tsimshatsui New World Development 309,300 Q4 2017

Lee Garden Three Wanchai / Causeway Bay Hysan Development 319,300 Q4 2017

Contacts
John Siu Keith Hemshall James Shepherd Reed Hatcher
Managing Director, Hong Kong Executive Director, Head of Office Services Managing Director Director, Head of Research
16/F, Jardine House 16/F, Jardine House Research, Greater China 16/F, Jardine House
1 Connaught Place, Central, Hong Kong 1 Connaught Place, Central, Hong Kong 1366 Nanjing West Road, Shanghai 1 Connaught Place, Central, Hong Kong
Tel: +852 2956 7088 Tel: +852 2956 7811 Tel: +86 21 2208 0769 Tel: +852 2956 7054
john.siu@cushwake.com Keith.hemshall@cushwake.com james.shepherd@cushwake.com reed.hatcher@cushwake.com

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Copyright 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered
to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. www.cushmanwakefield.com