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Office market Overall rents dip in Q3

Grade A office rents fell marginally overall in Q3 with no signs yet of a more major adjustment as fundamentals remain generally sound.

• The positive rental growth recorded over the past seven quarters came to an abrupt end in Q3 with overall rents falling by 1.0%. • On Hong Kong Island, Wanchai/Causeway Bay was hardest hit (-1.6%) with much milder falls recorded in Kowloon. • Mainland firms and co-working operators have both been key drivers of office demand over recent years, but PRC businesses have come under pressure as a result of the US/ China trade tensions and, more recently, the social unrest while co-working has been hit by the failed IPO of WeWork. • On a positive note, Mainland firms remain committed to Hong Kong, even if some multinationals may be weighing up other regional alternatives. • Uncertainties surrounding the unrest and the receding possibility of a swift resolution may play into the hands of serviced and co-working operators as more tenants are reluctant to commit to one- or two-year leases. • Vacancy rates remain below the 5% threshold when rental growth tends to turn negative and as a result, landlords are not yet yielding to tenant requests for rental reductions. • New supply over the next five years will be focused in Kowloon East and fringe island while 2023 will see major new projects completing in Central.

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