As Hong Kong tenants call the shots, can work-from-home inflict more damage to office market?

By Sandy Li / | May 26, 2020 1:56 PM SGT
Some companies in Hong Kong are exploring ways to extend the work-from-home arrangement after a successful spell during the coronavirus pandemic, challenging the value of office space in the world's most expensive market, some consultants said.
The chance to roll back office rental bills would be a welcome relief for businesses as tenants call the shots in a recession-hit economy, after prices weakened amid months of the city's worst political crisis and viral outbreak.
Last week, Hong Kong-based entertainment website 9GAG reportedly terminated its lease for 7,000 sq ft of office space in Tsuen Wan, sending all its staff to work from home. The firm could not be reached for comment.
"From what we're seeing, the companies that are considering work from home (WFH) policies are looking at allowing it for 10 to 20 per cent of their workforce, at most," said Keith Hemshall, executive director and head of office services in Hong Kong at Cushman & Wakefield. The WFH policy in the past two months has led many to reconsider their views on the practice, he added.
Office vacancy rate in Central, the world's costliest market, rose to a six-year high of 4.4 per cent in March, according to data published by JLL, as social unrest and the ensuing recession pushed prices back to levels last seen in 2017. Companies including WeWork h ave since given up some of their spaces.
"The current situation poses disruption and challenges for the office sector. The way people view and use corporate real estate will change," said Anthony Couse, chief executive for JLL Asia Pacific. "However, we can expect the office to remain at the heart of employers' occupational strategies over the medium to long term."
The transition, if at all, is thus likely to take years instead of months because companies remain keen to keep their physical office spaces, said Roddy Allan, chief research officer at JLL for Asia Pacific. That is, ironically due to the space problem " at home.
"The city's small homes are less conducive to working from home," he added. "The daily commute is generally more favourable [in Hong Kong], compared to other major cities because of the excellent transport infrastructure."
Nigel Smith, managing director at Colliers International Hong Kong, foresees some companies reducing their core office footprints. But some of the slack would be taken back up with flexible work space.
"Office demand is unlikely to be affected in Hong Kong longer term as it is a supply challenged market," he said. "But in the short term you may see some companies use this to reduce costs as staff become accustomed to working in different environments."
Alan Lok, executive director of advisory and transaction services of office services at CBRE believes WFH will not trigger any drastic business decision that would undermine office demand.
"Given the living environment and close proximity between homes and offices in Hong Kong, we believe such a trend will not go to an extreme," he added.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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