Office leasing momentum remained weak amid the ongoing U.S.-China trade conflict. Excluding pre-commitments to new supply completed this quarter, Q2 2019 saw just 12,000 sq. ft. of net absorption in the secondary market.
Subdued leasing demand ensured rents declined for the first time since Q2 2014. Overall rents fell by 0.6% q-o-q, led by the core markets of Greater Central and Wan Chai & Causeway Bay, where rents declined by 0.5% q-o-q and 0.6% q-o-q, respectively. Rents in the non-core markets of Hong Kong East and Kowloon East increased by 1.9% q-o-q and 1.0% q-o-q, respectively.
Leasing activity by agile space operators rebounded in Q2 2019. Apart from large operators displaying interest in non-Grade A buildings in core locations, several high-end newcomers opened their first centres in the city.
Rents in core submarkets are forecast to weaken in H2 2019. However, decentralisation will ensure rents in non-core submarkets increase by 2% to 3% by year-end.