Social turmoil frustrates the business environment. Enterprise move to outskirts to save cost.
(By Choi King-man)
The half-year violent demonstrations in Hong Kong has caused social unrest, damaged business environment, and severe economic prospects, enterprise speed up the pace of relocation to save rental expenses, thus the office rents continued to be suppressed. According to the latest report of “Commercial Building Express” issued by Midland, the rent of class A building again declined last month by another 1.5% month-on-month, and the cumulative decline since the second half of the year reached 6.9%. Among them, Hong Kong Island has fallen nearly 9%, significantly underperforming the 5% decline in Kowloon and the New Territories.
The report points out that the rent of class A commercial building had dropped for five consecutive months last month, and the drop in rents on Hong Kong Island was higher than that in Kowloon and the New Territories, mainly because some enterprises decided to move from Hong Kong Island where the office building rent has always been high to Kowloon to save rents due to the recent economic downturn. In addition, many recent political incidents have occurred in Hong Kong Island's central business districts, and daily operation of the enterprises was affected because some employees have difficulty going to work, thus some enterprises intend to find offices in Kowloon and other places as backup office locations, which supports the rent of commercial buildings in Kowloon to rise.
The sale prices of class A and B commercial buildings have fallen for five consecutive months.
In fact, recently, there has been a wave of abandoning leases of office buildings. For example, Riot Games, a Tencent-owned game company, has previously abandoned the lease of its office in The Center; And some shared space operators have reportedly given up renting some offices in Hong Kong, obviously suppressing the office buildings rents.
In terms of selling prices, the prices of class A and B commercial building had continued to fall last month, marking the fifth consecutive month of decline, and the price of the indicating class A commercial building among fell 1.2% month-on-month, with the cumulative decline in the second half-year up to 5.4%; while it fell 6% monthly for class B commercial building.
The Operation Director and Commercial Department Director of Midland Commercial Shops, Yung HungCheung believes that the recent weak performance of the office leasing market, coupled with the rising vacancy rate of class A commercial building in core areas lead some enterprises to seek for sublease or abandoning lease, making the market worse. He believes that the local economic recession is almost a foregone conclusion, and the unemployment rate is expected to rise next year, while when the political events will be over is still unknown, so the confidence of companies to do business in Hong Kong will be affected.
The rent of class A commercial building is expected to fall by 7% annually.
He continues to point out that although the rent decline of class A commercial building in the second half of this year may only be 8% to 9% which will be slightly lower than the company's forecast of 10% in the middle of the year with the full-year expectation decline in about 6-7%, it is believed the falling will continue at least until the middle of next year due to the poor outlook for commercial buildings. If the political incident is still not resolved by then, the rent of commercial buildings will continue to fall next year.
