Hong Kong Central office rents to fall by half, says Merrill
Cost of grade-A space forecast to drop 50pc from peak by 2010
Yvonne Liu 30 October 2008
The global financial crisis will lead to office rents in Central falling by 50 per cent by 2010 from a peak of HK$116 per sq ft in the third quarter, Merrill Lynch says.
The financial management and advisory firm said the rise in office rents that began in 2004 had been brought to an end by the crisis.
“Central office rentals are expected to fall because of weak office demand amid the global recession and increased supply from spaces vacated by relocating tenants to decentralised locations, or potential business closures,” Merrill said in its latest property report.
Previously, the firm had said it expected office rents to drop by 25 per cent to HK$72 per sq ft by the end of next year.
However, in its latest report it said that forecast might have been conservative in view of current difficult market conditions.
Merrill expects rents in Central to drop to HK$75 per sq ft by the end of next year and to about HK$60 per sq ft by the end of 2010. But it is optimistic that the downfall will be less dramatic than the 57 per cent decline after the Asian financial crisis of 1997/98 and outbreak of severe acute respiratory syndrome in 2003.
It also believes residential prices will drop by 20 per cent between now and the end of next year, while retail rents will drop by 10 per cent.
Fitch Ratings has a similar forecast for the property market.
“Recent corrections have been faster and stronger than previously expected, resulting in additional challenges for landlords and property investors,” it said. The firm says shop rents could fall by 10 per cent or more in the next six months.
However, it said: “The current rental levels for grade-A offices are approximately 200 per cent higher compared to three years ago. Unless the decline in spot rent is over 50 per cent, any new contracts signed - with a typical tenure of three years - will pay a rental level higher than the predecessor.”
Low vacancy rates in traditional office districts such as Central and Admiralty would slow down the correction, it said.
The global financial crisis has forced property agencies to lay off hundreds of staff since July.
United States-based CB Richard Ellis, an international property consultancy firm, has scaled back its operations departments in Hong Kong since Monday.
Sources said the firm had laid off 26 staff in its industrial, residential, retail and office departments this week. The residential department targeting the high-end property market suffered the most, with four staff leaving after 10 others had been laid off. The industrial department was cut from eight to two staff.
The firm declined to comment.
Centaline Property Agency said about 700 property agents had left the company since June. It is aiming to reduce its total staff of 2,000 by 20 per cent and the number of branches will be cut to 180 from 240.
Its subsidiary, Ricacorp Properties - employing 1,000 people - has laid off more than 200 since June and plans to close 25 branches.
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Hong Kong Central office rents to fall by half, says Merrill
Cost of grade-A space forecast to drop 50pc from peak by 2010
Yvonne Liu
30 October 2008
The global financial crisis will lead to office rents in Central falling by 50 per cent by 2010 from a peak of HK$116 per sq ft in the third quarter, Merrill Lynch says.
The financial management and advisory firm said the rise in office rents that began in 2004 had been brought to an end by the crisis.
“Central office rentals are expected to fall because of weak office demand amid the global recession and increased supply from spaces vacated by relocating tenants to decentralised locations, or potential business closures,” Merrill said in its latest property report.
Previously, the firm had said it expected office rents to drop by 25 per cent to HK$72 per sq ft by the end of next year.
However, in its latest report it said that forecast might have been conservative in view of current difficult market conditions.
Merrill expects rents in Central to drop to HK$75 per sq ft by the end of next year and to about HK$60 per sq ft by the end of 2010. But it is optimistic that the downfall will be less dramatic than the 57 per cent decline after the Asian financial crisis of 1997/98 and outbreak of severe acute respiratory syndrome in 2003.
It also believes residential prices will drop by 20 per cent between now and the end of next year, while retail rents will drop by 10 per cent.
Fitch Ratings has a similar forecast for the property market.
“Recent corrections have been faster and stronger than previously expected, resulting in additional challenges for landlords and property investors,” it said. The firm says shop rents could fall by 10 per cent or more in the next six months.
However, it said: “The current rental levels for grade-A offices are approximately 200 per cent higher compared to three years ago. Unless the decline in spot rent is over 50 per cent, any new contracts signed - with a typical tenure of three years - will pay a rental level higher than the predecessor.”
Low vacancy rates in traditional office districts such as Central and Admiralty would slow down the correction, it said.
The global financial crisis has forced property agencies to lay off hundreds of staff since July.
United States-based CB Richard Ellis, an international property consultancy firm, has scaled back its operations departments in Hong Kong since Monday.
Sources said the firm had laid off 26 staff in its industrial, residential, retail and office departments this week. The residential department targeting the high-end property market suffered the most, with four staff leaving after 10 others had been laid off. The industrial department was cut from eight to two staff.
The firm declined to comment.
Centaline Property Agency said about 700 property agents had left the company since June. It is aiming to reduce its total staff of 2,000 by 20 per cent and the number of branches will be cut to 180 from 240.
Its subsidiary, Ricacorp Properties - employing 1,000 people - has laid off more than 200 since June and plans to close 25 branches.
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