Press Release

Office Demands Across Sectors Declines, Moderate Demand Growth Expected Along The Longest and Deepest Downcycle On History

CBRE unveils research report “The Evolution of the Hong Kong Grade A Office Market: A Telescopic Analysis – 2022”

September 14, 2022

Media Contact

Cora Lai

Marketing & Communications Manager, Hong Kong

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Hong Kong, 14 September 2022 – Over the past three years, Hong Kong has been hit hard by unprecedented challenges such as the pandemic and global geopolitical tensions. The city’s Grade A office market has revealed declining demands across almost all sectors, while multinationals and Chinese companies will fuel the space demands when travel restrictions are lifted, of which the growth is expected to be gradual and moderate, according to CBRE’s latest research report “The Evolution of the Hong Kong Grade A Office Market: A Telescopic Analysis – 2022”. 

2019-2022 review: Longest and deepest downcycle in history with new record high vacancy rates 

Since mid-2019, company downsizing has been a prominent trend and led to substantial contraction in total occupied space and record-high vacancy in Hong Kong’s Grade A office market, triggering the longest and deepest downturn as a result. 

The office space occupied across by many sectors has declined between March 2019 and March 2022. The city-wide occupied space in the Grade A office market fell by 2.3 million sq. ft. to 73.0 million sq. ft. during this period. By square footage, logistics & trading, professional services (ex-legal) and banking and finance recorded the biggest net contraction in total occupied space. By percentage, the logistics & trading and professional services (ex-legal) sectors also had the biggest footprint reduction, down 11.8% and 14.4%, respectively. The banking & finance sector trimmed its total footprint by just 2.8%. 

The report shows that a total of 948 companies (or 9.5% of all Grade A office occupiers) downsized their Grade A office space in the three years to March 2022. This has pushed the vacancy to escalated and set a new record high of 9.6 million sq. ft in March 2022 and further reached 11.3 million sq. ft. in August 2022

Falling effective rents, increased space availability in the city core and high relocation costs have lessened the appeal of decentralisation for businesses. Office decentralisation has slowed with 974,800 sq. ft. of space relocated from core submarkets.

“The economic recession has prompted businesses to look at the office costs more carefully and reduce office footprint over the past few years. We have seen declines in overall new and expansionary demands, but positive signs from legal, real estate, healthcare industries and government departments. These industries are less affected by economic downturn and have been the key countercyclical growth drivers for the past three years. Moving forward, some of these industries will continue to see faster business growth, driven by structural changes in the economy. Office decentralisation will also regain momentum as more high-quality office spaces are available in decentralised areas,” said Marcos Chan, Executive Director and Head of Research, CBRE Hong Kong.

Table 1: Industry sector occupancy trends

 Grade A Office  Mar 2019  Mar 2022 Change
   City-wide occupied space
 Overall  75.3 million sq. ft.  73.0 million sq. ft. -2.3 million sq. ft
 Banking and Finance  21.2 million sq. ft.  20.6 million sq. ft  -0.6 million sq. ft.
 Insurance  5.2 million sq. ft.  5.0 million sq. ft.  -0.2 million sq. ft.
 Real estate and construction  7.3 million sq. ft. 7.5 million sq. ft.  +0.2 million sq. ft.
 Legal and professional services  6.8 million sq. ft.  6.2 million sq. ft. -0.5 million sq. ft.
 Retail & Wholesale, logistics & trading  11.9 million sq. ft. 10.7 million sq. ft. -1.2 million sq. ft.
 IT, Tech and telecom  4.5 million sq. ft.  4.2 million sq. ft.  -0.3 million sq. ft.

2022-2025 outlook: Moderate demand growth as driven by Chinese enterprises 

As the world is stepping into a post-COVID world, space demand from multinationals and Chinese enterprises could recover following relaxation of travel restrictions. However, office demand growth is expected to be gradual and moderate amidst economic headwinds and new ways of working. 

With new leasing demand from mainland Chinese firms in 2019-2021 standing 700,000 sq. ft. below that in 2016-2018, pent-up demand will be released when cross-border travel resumes. New and expansionary demand from mainland Chinese companies will grow at a rate of no less than 770,000 sq. ft. per annum. This was the annual level registered in the three-year period between 2016 and 2018 when cross-border travel was unrestricted. A wide range of industries including wealth management, healthcare and medical, tech and telecom, construction, co-working centres and retail will also drive office demands in the next three years. 

“The pandemic has obviously transformed our life and more people value work-life balance and flexible work arrangement. We are seeing workplace strategies will continue to evolve while both landlords and occupiers will place high emphasis on ESG and wellness. With the current high vacancy rate in the office market, landlords will have to consider this to broaden their tenant mix to improve occupancy. In this case, more innovative and flexible leasing packages will be offered until vacancy returns to lower levels,” said Ada Fung, Executive Director, Head of Advisory & Transaction Services – Office Services, CBRE Hong Kong.

In 2016 and 2019, CBRE Research published reports analysing occupier trends in Hong Kong’s Grade A office market. Designed to mirror Hong Kong’s typical three-year lease cycle, this third edition of “The Evolution of the Hong Kong Grade A Office Market – A Telescopic Analysis” identifies key office market trends to have emerged over the past three years between March 2019 and March 2022. The drivers and factors that will shape the office market in the coming three years are also identified. The 2022 edition looked at 82.6 million sq. ft. of Grade A office space across 253 buildings. This space is occupied by circa 10,000 companies in over 18,000 office separate premises.


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