Hong Kong’s office leasing market faces a new low this year, with rents declining by as much as 30 per cent, as companies assess their need for space and adopt work from home arrangements because of the coronavirus pandemic, analysts said.

Office rents in the city’s Central business district fell by 17 per cent to 18 per cent in the first half of the year, and could drop by between 25 per cent and 30 per cent for the whole year, said Jeff Yau, a Hong Kong property sector analyst at DBS Bank (Hong Kong).

“The office market is worse than the city’s housing market. Corporate downsizing is very common -there is no expansion plan really,” he said.

Working from home is expected to become a trend in the mid to long term, particularly among Hong Kong’s finance, technology and foreign companies, as cost saving becomes an immediate priority for a majority of firms because of the pandemic.

“Do they need so much space? It will be different from before,” Yau said. “Companies will definitely assess their office needs again in the coming 10 years.”

Last month, Central recorded the greatest drop in rents, which fell 2.5 per cent month on month, among the city’s various office districts, the first time it has done so since December 2005, according to JLL.

Meanwhile, the district’s vacancy rate continues to increase. Surrendered space, or office space that tenants give up before their leases expire, amounted to about 520,000 sq ft, or 2.2 per cent, of Grade A office stock, breaching the 500,000 sq ft mark for the first time since October 2002, JLL said.

DBS’s Yau added that vacancies had not bottomed out yet and could surpass 7 per cent by year end, because there was hardly any demand. He pointed out that many co-working operators had given up space before their leases had expired.

Cost-saving was a priority for the 70 key occupiers representing a broad cross-section of the city’s office occupier market surveyed by Cushman& Wakefield in June and July.

Following a difficult 2019, with US-China trade tensions and protests both contributing to growing uncertainty, the pandemic has “dealt many firms a third blow and led to an even more uncertain business outlook among office occupiers,” said Reed Hatcher, head of research in Hong Kong at Cushman and the lead author of the survey report.

More than 85 per cent of the respondents said their businesses had been affected by the pandemic, with a third of the surveyed companies now planning to downsize over the next three years.

“Beyond that, Covid-19 has also forced many to adopt new ways of working and given way to new priorities that may outlive the pandemic,” Hatcher said.

Moreover, in the longer term, most companies are expected to favour investment in technology and remote working. About 65 per cent of the respondents said they expected to adopt some degree of work from home on a long-term basis.

Among companies that said they planned to continue to allow remote working even after the pandemic has receded, the majority said they would apply work from home practices to between 11 per cent and 30 per cent of their workforce.