Even given capital expenditure concerns, office decentralization has remained an option for many businesses and we have recently seen Central-based asset management firms and securities firms relocating to Wanchai/Causeway Bay and Wong Chuk Hang.
It is notable that the rental difference between Central and all other business districts has narrowed to late 2017 levels. The reduced rental gap should lessen the attractiveness of moving away from the CBD given that the capital expenditure costs of relocation remain high.
Co-working operators are still being negatively affected by the pandemic as people are still being encouraged to adopt social distancing. As a result of the subdued demand, we observe major co-working operators surrendering locations in major business districts. While many flexible space operators are trimming down their presence, IWG, the parent company of Regus, is expanding, securing two floors in Hysan Place, which were surrendered by another major flexible space operator.
We observe that PRC tech firms are still expanding as it was reported that Alibaba have committed to one more floor (about 17,000 sq ft) in Times Square while ByteDance, the owner of TikTok, entered into a 3-year lease for about 3,000 sq ft in the same building. Some major PRC financial institutions (CMB International, Minsheng Bank and Orient Finance) have also signed up for additional office space in Central while their foreign counterparts consider downsizing.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Corporate solvency has become an issue as more firms opt to downsize or close altogether in a business environment facing numerous challenges over the next six months.”
Mr. Ricky Lau, Deputy Managing Director, Head of Office Leasing said: “Although the FIREBS unemployment rate hit a 10-year peak, we see a resurgence in demand from PRC technology and finance companies and flexible space operators, which is helping to support the office leasing market.”