MARKETVIEW Rental decline accelerates as leasing momentum remains weak -245,100 sq. ft. Office leasing momentum remained weak in Q4 2020 as the city reported a resurgence in COVID-19 cases. A lack of clarity around the duration of the pandemic and prospects for business momentum saw occupiers retain a conservative attitude towards expansion. Net absorption registered -245,100 sq. ft., marking the fifth consecutive quarterly contraction. Full-year net absorption stood at - 2.2 million sq. ft., the largest decline on record. Landlords, especially those on Hong Kong Island, were observed to be offering more substantial rental discounts to compensate for limited leasing demand. More landlords are willing to provide leasing incentives and CapEx to attract tenants. The rental decline accelerated on Hong Kong Island but slowed in Kowloon and New Territories. The rental gaps between core and non-core submarkets narrowed over the course of 2020, curtailing decentralisation. H2 2021 could see an improvement in demand, provided the pandemic is brought under control and the economy begins to recover. CBRE expects Hong Kong Grade A office rents to decline by another 5% across all major submarkets in 2021. Hong Kong Grade A Office, Q4 2020 2020 CBRE, Inc. | 1 -4.1% q-o-q +0.3pp q-o-q Q4 2020 CBRE ResearchMARKETVIEW HONG KONG GRADE A OFFICE HONG KONG ISLAND Q4 2020 CBRE Research 2 -1,000 -500 0 500 1,000 1,500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Central ADM/SW WC/CWB HK East WCH Thousand sq. ft. Figure 1: Hong Kong Island Net Absorption Source: CBRE Research, Q4 2020. -15% -10% -5% 0% 5% 10% 15% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Central ADM/SW WC/CWB HK East WCH Q-o-Q % change Figure 3: Hong Kong Island Rental Growth Source: CBRE Research, Q4 2020. 2020 CBRE, Inc. | 0% 10% 20% 30% 40% 0% 2% 4% 6% 8% 10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Central ADM/SW WC/CWB HK East WCH (RHS) Vacancy (%) Figure 2: Hong Kong Island Vacancy Rate Source: CBRE Research, Q4 2020. Vacancy (MARKETVIEW HONG KONG GRADE A OFFICE -600 -400 -200 0 200 400 600 800 1,000 1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Greater Tsim Sha Tsui Kowloon East Kowloon Others New Territories Thousand sq. ft. Figure 4: Kowloon WONG CHUK HANG 5 2020 CBRE, Inc. | Figure 9: Key submarket statistics Figure 8: Selected leasing transactions in Q4 2020 Source: CBRE Research, Q4 2020. Property District Size (sq. ft. NFA) Tenant Hopewell Centre Wan Chai 10,800 Convoy World Trade Centre Causeway Bay 9,600 Dr Reborn St. Georges Building Central 6,200 Aspex Management AIA Central Central 5,700 Brilliance Capital Management One Hennessey Wan Chai 4,600 Unicorn Capital Partners Ltd Two Exchange Square Central 4,100 SuningMARKETVIEW HONG KONG GRADE A OFFICE Kowloon KOWLOON EAST - KOWLOON BAY, KWUN TONG; KOWLOON OTHERS - JORDAN, MONG KOK, HUNG HOM, CHEUNG SHA WAN, SAN PO KONG, KOWLOON TONG; NEW TERRITORIES - KWAI CHUNG, TSUEN WAN, SHA TIN, SHEUNG SHUI, TUNG CHUNG Figure 11: Key submarket statistics Figure 10: Selected leasing transactions in Q4 2020 Source: CBRE Research, Q4 2020. Q4 2020 CBRE Research 6 2020 CBRE, Inc. | Source: CBRE Research, Q4 2020. District Q4 2020 net absorption (sq. ft. NFA) YTD 2020 net absorption (sq. ft. NFA) Vacancy rates Rents (HK$/sq. ft./mth) Q-o-Q rental change YTD rental change High / Low (HK$/sq. ft./mth) Kowloon -51,900 -678,000 12.4% $40.1 -1.8% -16.2% 92.4 / 18.5 New Territories -24,200 -95,500 16.6% $32.0 0.1% -6.9% 36.0 / 24.8 Greater Tsim Sha Tsui -82,600 -521,500 9.2% $52.9 -1.7% -17.6% 92.4 / 31.9 Kowloon East 70,600 27,800 15.0% $29.0 -1.9% -15.8% 39.4 / 21.3 Kowloon Others -39,900 -184,300 11.4% $35.9 -1.8% -11.3% 53.3 / 18.5 Property District Size (sq. ft. NFA) Tenant International Trade Tower Kwun Tong 72,900 DHL Express The Gateway, Tower 5 Tsim Sha Tsui 37,500 IWG / Regus Habourside HQ Kwun Tong 17,100 Atos Information Technology Langham Place Mong Kok 12,800 Dr Reborn Enterprise Square Three Kowloon Bay 11,300 Ingram Micro NEO Kwun Tong 7,800 Lion Rock GroupMARKETVIEW Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. CONTACTS CBRE HONG KONG OFFICES HONG KONG GRADE A OFFICE