Hong Kong Office Vacancies Rise; China Attempts to Lure Companies With Low Rents

Grade A commercial buildings in Central, including The Henderson, Bank of China, and Cheung Kong Centre, in Hong Kong in this undated photo. Bill Cox/The Epoch Times

The vacancy rate of office buildings in Hong Kong has been soaring in recent years. Meanwhile, amid a sluggish leasing market, China’s Shenzhen city has been attempting to attract Hong Kong firms with low rents to set up offices there.

Hong Kong’s High Vacancy Rate

Newly constructed commercial office buildings throughout Hong Kong are having difficulty attracting tenants. According to data from CBRE Group, a U.S.-based commercial real estate services and investment firm, the leasing rates for most new commercial buildings were still below 50 percent in the first quarter of 2024.

CBRE data indicated that the average vacancy rate in the first quarter reached an “all-time high” of 16.7 percent or 14.7 million square feet.

Cheung Kong Group’s flagship property in Central, Cheung Kong Center, was 25 percent vacant in the past year, according to various Chinese media reports. Meanwhile, the nearby newly built glass tower, Cheung Kong Center II, a Grade A commercial building with 41 stories and panoramic sea views, leased 10 percent of its space due to prolonged negotiations with potential tenants, Bloomberg reported in May.

Hong Kong business magnate Li Ka-shing is the chairman of Cheung Kong Group.

Although the vice-chairman of the Group, Victor Li Tzar-kuoi, who is also Mr. Li’s eldest son, expressed confidence in the future of Cheung Kong Center II at the annual shareholders’ meeting in May, he acknowledged that there is currently low demand for office space in the short term.

Shenzhen

Since early 2024, the vacancy rates of commercial buildings in China’s four major first-tier cities—Beijing, Shanghai, Guangzhou, and Shenzhen—have continuously risen.

In Shenzhen—a sprawling metropolis that links the mainland to Hong Kong—the vacancy rate of Grade A office buildings has climbed to 30.6 percent in the first quarter of 2024, according to Savills, a British real estate services company.

According to the latest report from Savills, due to the entry of many new projects into the market, the average vacancy rate of Grade A commercial buildings in Shenzhen has reached 30.6 percent, with quarterly increases of 1.7 percentage points and annual increases of 6.2 percentage points. By the end of the first quarter of 2024, the total inventory of Grade A office buildings in the market had increased to 11.23 million square meters, forcing the landlords to step up rental discount strategies.

Based on market statistics in January, the rent for Grade A office buildings in Shenzhen decreased by 8.4 percent in 2023, compared to the 6.5 percent decline in rent for Hong Kong Grade A office buildings during the same period. However, Shenzhen reported that office rents have returned to their levels of 10 years ago.

‘Cut Prices’

“Cut price to remove stock“ has become the consensus among landlords. Real estate projects in various districts continued to lower prices at the beginning of 2024 to attract tenants, leading to decreased rents in several areas. The city’s average rent declined by 1.4 percent to 173.1 yuan (about $23.88) per square meter per month, according to data from CBRE.

In 2024, the rental level in Shenzhen further declined. According to the first-quarter report from Savills, the average rental index for office buildings in Shenzhen decreased by 6.7 percent year-on-year. The average rent (excluding additional expenses such as management fees) dropped to 163.9 yuan (about $22.62) per square meter, which is lower than the rent for ordinary industrial buildings in Hong Kong.

Office property transactions have become the mainstay of the Shenzhen real estate market. According to the “2023 Shenzhen Bulk Transaction Market Report” released by Savills, the total amount of bulk transactions in Shenzhen’s real estate market last year was approximately 28.3 billion yuan (about $3.904 billion), of which office property transactions accounted for about 60 percent.