In the central five wards (C5W), where Grade A supply has been at historically high levels, large-scale Grade B office supply continues to be limited, and the situation is being exacerbated by tenants squeezed out of the somewhat pricey Grade A market. As a result, average rental growth in the Grade B market has outpaced Grade A. 

Amid a challenging global economic environment, the performance of large-size companies have stuttered, whilst small- and medium-size companies have seen some recovery in profits. As a result, vacancy rates for Grade B offices could face continued tightness, underpinning rental growth going forward.

Against a backdrop of feverish demand, vacancy rates lie below 1.0% across all submarkets, both in the Grade A and B markets. As of Q3/2019, the spread between average vacancy of Grade A and Grade B offices is indistinguishable, with the former at 0.2% and the latter around the 0.3% mark. The lofty rents demanded in the Grade A market could, in part, explain this phenomenon as those less financially able are pushed towards Grade B assets. This trend is expected to continue with the majority of future supply designated as Grade A, where the differing rent ranges, compared to Grade B, means that these markets do not directly compete.