Hong Kong's weak commercial property market squeezing out coworking space operators

Hong Kong's weak commercial property market is squeezing out coworking space operators as firms take advantage of the downturn to have better deals on leases for conventional office space, Nikkei Asia reported. In July, flexible working space office operator The Great Room closed its flagship space in CK Hutchison's Cheung Kong Centre. A spokesperson from the company said, "This decision was not taken lightly, but [was] a necessary one so that we can better redeploy our resources," Nikkei Asia reported.

The company further said, "We remain committed to Hong Kong and we look forward to continuing growing our network of locations here." Australia's Servcorp, which had two flexible working spaces in the Grade A premium office towers IFC and One Peking stopped operations in Hong Kong in June, Nikkei Asia reported citing sources. Flexible working space operations expanded in Hong Kong throughout the COVID-19 pandemic as they took advantage of changing work habits and demand for shorter lease terms. However, the apartments and public transportation have encouraged employees to get back into the office as the COVID-pandemic has ended, according to Nikkei Asia report.

Flexible office operator The Executive Centre announced that it has no plans for additional space in Hong Kong this year., according to the report. As the employees are getting back into offices, the concerned companies have started seeking spaces with sophisticated designs that offer technology and wellness amenities. Real estate agency JLL said that companies are more likely to take conventional office arrangements to address their needs. Paul Yien, executive director of office leasing advisory at JLL, said, "Tenants are more willing to make real estate decisions, as office rents are around 30 per cent lower than the market peak in 2019 and landlords are more flexible with leasing terms."

As the market sentiment has improved and leasing inquiries for Grade A offices have witnessed a rise, the share of empty offices is projected to increase further as new projects are completed, according to Nikkei Asia report. The CBRE said that negative absorption or more space being added than is leased out in the second quarter of 2023 has resulted in total vacant space reaching a record high of 13.5 million square feet across the city. As per the news report, the leasing volume for the first six months of the year was half of the total in 2022.

Ada Fung, head of advisory and transaction services for offices at CBRE Hong Kong, said, "Global economic uncertainties and higher financing costs ensured office leasing momentum slowed marginally compared with the first half of 2022." The development follows years of headwinds for the commercial property market. Vacancy in Hong Kong's premium office space reached record high as multinational firms retreated during a COVID-19 pandemic and a security crackdown by Beijing resulting in an exodus of residents, according to Nikkei Asia report. Western financial companies have particularly reduced their footprint.

Commercial real estate agency Cushman & Wakefield expects office rental prices to reduce further between 5 per cent and 7 per cent for the 12 months of 2023, the report said. Meanwhile, the Hong Kong government has been making efforts to attract talent back to the financial centre.