Hong Kong's prime office market wobbles as Chinese firms scale back amid trade war

By Sandy Li sandy.li@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3018070/hong-kongs-prime-office-market-wobbles-chinese-firms-scale?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | July 12, 2019 10:22 AM SGT
Hong Kong's prime offices, the world's most expensive for four years running, are losing their cache as a year-long US-China trade war has deterred companies from taking on more space, forcing landlords to offer discounts.
Grade-A office rent in the Central district dropped 0.1 per cent in the second quarter, reflecting the first quarterly decline since the final three months of 2013, while rents in Wan Chai and Causeway Bay fell 0.4 per cent during the same period, according to JLL's data.
Mainland Chinese companies, which used to outbid other tenants for the most prestigious offices, are likely to slow their pace of expansion until early 2020, according to a study by CBRE which showed Chinese enterprises occupying 9.3 million square feet, or 12 per cent of the total in Hong Kong, of grade-A office space.
"The ongoing uncertainties behind the US-China trade conflict will translate into slower leasing momentum from Chinese enterprises from now to early next year," said Marcos Chan, head of research at the Greater Bay Area and Hong Kong of CBRE. "Several Chinese companies have overexpanded and opted to surrender space to replacement tenants, some of which are also from China."
In January, the embattled HNA Group surrendered five office floors at Three Exchange Square in Central as part of a cost-cutting exercise. HNA is being sued by Mulberry Land, a wholly owned subsidiary of Hongkong Land, which claims the debt-laden Chinese conglomerate owes two back payments, one worth HK$3.65 million (US$467,019) due on December 1, 2018 and another of HK$4.65 million due on January 1 this year, according to a writ filed with the High Court.
Chinese firms leased 2.1 million sq ft of grade-A office space during the three years through March this year, up from 1.2 million sq ft from 2013 to 2016, according to CBRE research.
Meanwhile, new lettings by mainland firms in Central dropped 53 per cent in the first half on year, according to JLL.
"Mainland firms, the key driver of demand in Central over the last three years, turned inactive through the first half,"...