A recent report shows that rentals for some prime street shop fronts last year had gone back to 2011-12 levels, with a drop of up to 50 percent in some cases. Despite the woes facing the retail leasing market, experts expect street-shop rentals to stabilize this year as more affordable luxury brands and the basic goods sector are looking for opportunities to expand in prime locations originally occupied by operators of luxurious brands. Roy Liu / China Daily

Growing demand from Chinese mainland enterprises and global insurers, coupled with tight supply, have driven Hong Kong's office rents to the highest levels in the Asia-Pacific region in recent years, says global real estate advisory firm DTZ/Cushman & Wakefield.

"The city's office rental levels are the highest in the Asia-Pacific region, and office rents in major mainland cities like Beijing, Shanghai and Guangzhou remain low compared with Hong Kong's," said John Siu Leung-fai, managing director at DTZ/Cushman & Wakefield.

Office rentals in the SAR climbed 3 percent year-on-year in 2015, with the city's weighted average rent standing at HK$77.31 per square foot per month late last month, DTZ/Cushman & Wakefield data show.

A growing number of mainland companies, as well as international insurance firms, have been scrambling for office space in Hong Kong to expand or relocate their operations, pushing up office rentals. According to DTZ/Cushman & Wakefield, mainland and insurance companies accounted for 23 percent and 13 percent, respectively, of major new office leases in Hong Kong last year.

Another factor for the high rents is tight supply. DTZ/Cushman & Wakefield estimates that Hong Kong's total supply of new office space this year will reach just 2.3 million square feet, with no additional supply in the prime Central business district.

According to the company, new office space supply in Hong Kong from 2010 to 2015 will be no more than 1.71 million square feet, with 2014 seeing new office supply amounting to only 0.46 million square feet.

Looking ahead, DTZ/Cushman & Wakefield expects office rents in Hong Kong this year to rise from zero to 5 percent, with 1.1 million square feet to be absorbed.

"Policy-related business developments should continue to support the expansion of local, mainland and multinational companies in Hong Kong, but the scale of business expansion and relocation plans could be affected by concerns over economic uncertainties and the performance of the global and regional economy. We expect the volume of office absorption and rental growth in core districts to be slower in 2016," Siu said.

DTZ/Cushman & Wakefield expressed concern over the local retail leasing market, as the property segment will continue to be dragged down by falling tourist arrivals and retail sales, as well as concerns over the region's prolonged economic slowdown.

Rentals for some prime street shop fronts last year had gone back to 2011-12 levels, with a drop of up to 50 percent in some cases.

"Despite the woes facing the retail leasing market, we expect street-shop rentals to stabilize this year as more affordable luxury brands and the basic goods sector are looking for opportunities to expand in prime locations originally occupied by operators of luxurious brands," said Kevin Lam Ying-wai, head of business space at DTZ/Cushman & Wakefield.

oswald@chinadailyhk.com

(HK Edition 01/13/2016 page9)