Hong Kong rent decline narrows to 0.8%, central becomes a safe haven for funds?

Data shows that the rental decline of office buildings in Central has narrowed to 0.8%, the smallest decline in recent years; At the same time, global alternative asset management giant Ares Management announced an increase in investment in Central, doubling its office space in Gloucester Tower, adding approximately 12500 square feet of new floor space. The new lease will officially take effect in March. Combined with the sharp drop in the vacancy rate of shops in Central to 4.3%, which is significantly better than the performance of Causeway Bay (8.3%) and Tsim Sha Tsui (7.9%), a series of positive signals confirm that Central's defensive strength has become prominent after years of adjustment, and the office property market may have entered a bottoming out recovery cycle. At this time, large households are rushing to rent and expand, and behind it is a precise judgment and strategic layout of market trends.

1、 Narrowing rental decline+decreasing vacancy rate, clear signal of bottoming out in Central market

As the core financial hub of Hong Kong, Central's real estate market trend has always been a barometer for commercial real estate in Hong Kong. After several years of adjustment, the office market in Central has finally shown signs of stabilization, with the rental decline narrowing to a weak level of 0.8%, indicating that the market supply and demand relationship is gradually returning to equilibrium, and the previously downward rental pressure has been effectively alleviated. This trend is not an isolated case, and the overall vitality of the commercial ecosystem has also improved simultaneously - the vacancy rate of street shops has fallen to a low of 4.3%, far lower than other core business districts, reflecting the rapid recovery of consumption and commercial atmosphere in Central, forming a benign trend of "office buildings+street shops" dual recovery.

From industry data, this change is in line with the overall evolution logic of the market. Morgan Stanley's latest research report points out that although the overall office rent in Hong Kong is expected to fall by 3% this year, the Central area will be the first to benefit and achieve a 3% rent increase, becoming a "safe haven" for the entire office market in Hong Kong. Cushman&Wakefield's previous data also showed that the rental rate of super Grade A office buildings in Central continued to rise, the rental rate of IFC, the core landmark building, had exceeded 90%, close to the historical peak, and the scarce office resources were "hard to find", which further supported the stable recovery of rents and consolidated the bottom of the market.

2、 The core logic of large-scale leasing expansion: dual drive of asset allocation and strategic layout

Ares Management's decision to expand its office space in Central at this time is not accidental, but rather a comprehensive consideration of market cycles, resource aggregation, and strategic opportunities by foreign institutions. The trend of such "smart money" often indicates a turning point in the market.

One is to bottom out core assets and lock in long-term cost advantages. After years of rent adjustment, the rent of office buildings in Central has fallen by more than 40% compared to its high in 2019, and is currently at a relatively low historical level. For institutions planning to establish long-term roots in Hong Kong, expanding office space at this time can not only lock in core location resources with more cost-effective rent, but also avoid the pressure of rent increases after the market recovers. After this expansion, Ares Management will further consolidate its layout in the Asia Pacific market and expand its business boundaries by leveraging the financial hub advantages of Central.

Secondly, relying on the core aggregation effect, seize market opportunities. As the core carrier of global offshore financial centers, Zhonghuan has gathered various financial institutions, professional service teams, and high-end resources, forming an irreplaceable industrial ecosystem. In recent years, with the booming development of asset and wealth management business in Hong Kong, the total value of managed assets has risen to HKD 35.1 trillion. International asset management institutions, hedge funds, family offices and other "new funds" continue to pour in, and they are all laying out in Central to get closer to the market and connect resources. Previously, giants such as Point72 and Jian Street Capital had already made significant investments in leasing super Grade A office buildings in Central. Ares' follow-up expansion is in line with this trend of "capital returning to Central".

Thirdly, bet on Hong Kong's financial recovery and policy dividends. Hong Kong is accelerating the consolidation of its position as an international financial center. By 2025, the IPO fundraising amount of Hong Kong stocks will regain the top spot in the world, with a year-on-year increase of 118% in daily transaction volume and a significant increase in market activity. At the same time, as a bridge connecting the mainland and the global market, Hong Kong's policy advantages in asset and wealth management, virtual assets, and other fields continue to be released, attracting foreign institutions to increase their layout. For alternative asset management giants like Ares, expanding the office space in Central is not only a need to seize the opportunities of Hong Kong market recovery, but also a strategic layout to expand cross-border business based on regional advantages.