Grade A office rental growth softened to 0.5% in October

Weak stock market performance and escalating trade tensions weighed on investment volume.

Rents in the Grade A office market continued to rise albeit at a slower pace inching up 0.5% MoM in October compared to the 1% MoM growth in September, according to JLL’s latest Property Market Monitor.

Leasing demand in Central appears to be softening with the amount of surrender space climbing to 337,000 sqft which is nearly double the amount since the start of 2018, the report highlighted.

Overall Grade A office vacancy was at 4%, with vacancies reaching 1.5% in Central, 1.7% in Causeway Bay and 1.8% in Hong Kong East. The largest vacancy rate reported was in Kowloon East at 9.4%.

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“Investment volume remained subdued against the backdrop of falling stock market and escalating uncertainties brought about by the trade war,” JLL head of research Denis Ma said. “Still, a number of smaller Grade A office units transacted at extremely high prices.”

He noted how a 2,930 sqft unit on the 30th floor of 9 Queen’s Road Central was reportedly being sold for $163.5m or $55,800 per sqft which is amongst the highest ever transacted in the building.

“Net absorption in the overall Grade A office market amounted to 188,100 sqft in October, bolstered by tenant movement to decentralised areas, especially to Hong Kong East and Wong Chuk Hang,” JLL head or markets Alex Barnes said in a statement. “The stronger growth was supported by a 1.3% MoM increase in Grade A1 offices as more decentralising tenants targeted higher quality office buildings.”

Nonetheless, banking and financial services remained active in the market. JLL drew upon China Merchants Bank as an example as it will reportedly relocate to Three Exchange Square after leasing five floors, approximately 59,400 sqft, to accommodate its expansion plans. The report also noted how The Royal Bank of Canada reportedly leased 40,000 sqft at One Taikoo Place in Quarry Bay in a move to relocate its offices from the city centre.