The full effects of Covid-19 have yet to filter through the office leasing market, although there is clearly a growing trend for companies to take co-working space, as a temporary measure, until businesses can evaluate the full impact of the virus. Face rents / asking rates have altered little, but we have witnessed landlords being far more flexible with their negotiations to offer attractive average effective rates.
Few companies are expanding in this economic climate, but quite a few are rationalizing their space. Some are downsizing / ‘right sizing’ but there is no mass exodus from conventional office premises. For those companies looking to right size, much will depend on when their lease expires. Many still have several years to go on their leases, which means they are reliant upon finding a replacement tenant. This will take time to trickle down from the top – for example those companies looking to right size from 8,000 sq ft to say 5,000 sq ft, need to find a company looking to downsize from say 12,000 sq ft to 8,000 sq ft.
Subleasing surplus space is usually out of the question. There is no doubt that the weakening of demand will put pressure on rates and we expect rentals to soften by around 8% during the course of 2021. Demand however is still there and will be supported by increased interest from Hong Kong firms, as well as forced displacement of tenants from buildings such as Fuji Xerox Towers, AXA Tower and Central Mall. There may be more staff working from home, which in theory should result in a reduction in size requirements, but those staff that are still working in the office will require larger space to comply with social distancing rules, hence the downsize might not be as dramatic as first envisaged.
