PHILIP FONG

Kowloon East’s Grade A office vacancy rate stood at 19.8 per cent at the end of July, according to the latest figures from JLL. The rate fell 0.2 percentage points from 20.0 per cent in June, marking a second consecutive monthly decline. The picture looks very different when compared with figures from March and April: the vacancy rate was 20.4 per cent at the end of March before rising to 20.7 per cent a month later. In other words, the same firm’s monthly reports have pointed in two opposite directions over the past six months.

The dominant narrative in Hong Kong’s Grade A office market during the first half of the year was one of a “two-tier market”. Central benefited from relocation demand among hedge funds, private banks, and legal and compliance teams, with its vacancy rate falling from 10.1 per cent in January to 8.8 per cent in June, a 43-month low. At the same time, non-core districts such as Kowloon East and Island East were described as facing a vacuum in demand, with both rents and tenants moving away. In an April report, JLL Hong Kong head of capital markets and commercial agency business Dennis Ma explicitly said non-core business districts “will remain under pressure, and this situation is expected to persist in the short term”. A first-quarter report released by Colliers in April similarly identified Kowloon East as one of the areas where market polarisation was intensifying: rents in Central and Admiralty rose 3.5 per cent quarter on quarter, while those in Kowloon East fell 1.2 per cent.

But the latest edition of JLL’s Hong Kong Property Market Monitor, released on August 19, presented a different picture. Overall Grade A office vacancy fell to 12.8 per cent at the end of July, a 31-month low. The report said the “improvement [was] driven by declining vacancy rates across most office submarkets” — rather than by Central alone. Its accompanying table showed that vacancy rates declined from June to July in every submarket except Wan Chai/Causeway Bay: Central fell from 8.8 per cent to 8.0 per cent, Island East from 13.3 per cent to 13.0 per cent, and Kowloon East from 20.0 per cent to 19.8 per cent.

Quarterly data from CBRE pointed in the same direction, albeit from a different angle. Kowloon East recorded positive net absorption of 35,500 square feet in the second quarter, from April to June, reversing the negative figure recorded in the first quarter. It is important to note, however, that the sharp decline in the first quarter meant net absorption for the first half of the year remained negative at 95,500 square feet. A return to positive territory in one quarter does not mean the market has stemmed the outflow over six months; the two figures cover different periods and should not be conflated.

Kowloon East still had the highest vacancy rate among Hong Kong’s six office submarkets, at 19.8 per cent compared with 8.0 per cent in Central. The gap remains substantial. But a large gap and a widening gap are two different things — and figures for the past two months show that the latter is no longer the case.