Rents are 30% from their 2019-peak, while vacant space surged to 6.6 million sq ft net in Q4.

• The fourth quarter saw further rental declines across all districts ranging from -1.5% to -3.5%, bringing the full year decline to 7.6% for 2022.  Vacancy rates also increased to 10.4% from 9.9% a year ago, with vacant space standing at 6.6 million sq ft net at the end of 2022.
• Of the 3.8 million sq ft net of Grade A office completions in 2022, only 19% has been pre-committed so far, adding 3.1 million sq ft of vacancy space to the market in 2023, on top of the 1.9 million sq ft net of scheduled completions.
• Most significant deals completed over the quarter were multi-floor pre-lettings of newly completed / to be completed Grade A offices in both the CBD and decentralized areas.  Meanwhile, some wealth management firms and insurance companies are planning for expansion ahead of the proposed Mainland border reopening in early 2023.
• The rebounding stock market, a loosening of most COVID-related measures as well as the scheduled border reopening with the Mainland are all positive signs for office demand, but hangover vacancy from 2022, and doubts over the strength of both the local and Mainland economies are weighing on recovery.
• We expect office rents to continue to decline by 10% in 2023 as a result, with areas experiencing more upcoming supply (and overhang vacancy) likely to see the deepest discounts, while experiencing a pick-up in leasing activity.