HONG KONG – Hong Kong’s most prestigious skyscrapers have more empty office space than before, underscoring the challenge facing Chief Executive John Lee’s government as he tries to revive the city’s standing as an international business hub.

Empty premium office space – or the so-called Grade-A stock – has almost tripled in three years to an all-time high of a combined 11.9 million sq ft as at October, according to CBRE Group.

At Cheung Kong Centre, a skyscraper owned by billionaire developer Li Ka-shing, vacancy surged to 21 per cent in September, from just 5.4 per cent in mid-2020, according to Midland IC&I. 

Though commercial property slump is a global phenomenon after the coronavirus pandemic ushered in the remote work era, the record vacancy rates in Hong Kong point to other woes plaguing the world’s most expensive market.

Lingering Covid-19 curbs – unseen in cities like New York or Singapore – and a sealed border with China have effectively turned off demand from foreign companies and mainland firms.

The prolonged weakness has started to hurt even top-tier towers that usually remain immune to downturns.  

“Hong Kong has offered itself as two things: a gateway to China and a regional hub,” said Mr Simon Smith, a senior director for research and consultancy at Savills.

“Current Covid-19 restrictions really deny both of those benefits to office tenants, particularly when people look to Hong Kong as the base for regional headquarters. That appeal has been dramatically diminished.”

Tenant outflow

Cheung Kong Centre, which houses Goldman Sachs and Jefferies Financial Group, is not the only tower grappling with tenant outflow.

Almost 5 per cent of International Commerce Centre (ICC), Hong Kong’s tallest building that is home to Morgan Stanley and Deutsche Bank, is empty, up from 1 per cent in mid-2020. Central Plaza, a high-end building in the Wan Chai area popular with foreign embassies and financial firms, had 9.4 per cent of its space vacant, versus 3.2 per cent in mid-2020. 

CK Asset Holdings, owner of Cheung Kong Centre, and Sun Hung Kai Properties, which owns ICC and Central Plaza, did not immediately respond to e-mails seeking comment on the vacancies.

The government has been trying to stem the exodus, but some experts say it needs to do more. 

In the four months he has been the city’s Chief Executive, Mr Lee has eased most travel and quarantine restrictions and unveiled a slew of measures aimed at wooing foreign talent.

The city, which is hosting a much-anticipated banking summit this week to mark its reopening, is considering concessions for attendees, including allowing those who test positive for the virus to skirt isolation rules and exit on private jets, Bloomberg News has reported.

These steps do help, but Mr Lee has not set a timeline to return the city to pre-pandemic norms, said Mr Eric Zhu from Bloomberg Economics. 

“Without this, regaining ground lost during the pandemic to Singapore and other rivals will take time,” he said.

The commercial downturn, combined with a tumbling residential market, is adding pressure on the city’s developers, which are already dealing with shrinking profit margins.

Making things worse, Hong Kong is seeing a surge in high-end office supply for the first time in more than a decade.

In the island’s main business district, developers CK Asset and Henderson Land Development are building a skyscraper each, which will be completed in 2023. Henderson Land also has a harbourfront commercial project with office space, which is set to be partially completed in 2027.

There are still some bright spots in the market. Sun Hung Kai’s commercial project atop the high-speed railway station connecting to China recently signed UBS Group as its anchor tenant occupying nine floors. The project is expected to be completed in 2025.

But broadly, these future projects are adding more competition in a tenant-starved market, and it is unlikely there will be sufficient demand to fill the upcoming space in the city any time soon.

BLOOMBERG