Introduction: If there are fewer overhead lights in Central, will your property prices also drop?
"Recently, many floors of office buildings in Central seem to be darkened. Have many companies moved out?" "If the office building is vacant, what does my apartment have to do with it? I live alone!"
In the intuitive perception of many people, office buildings (Commercial) and residences (Residential) are two independent parallel worlds. The commercial and office market is bleak because major banks in Central have relocated or are working from home (WFH), while residential housing prices depend on mortgage interest rates and the rigid needs of the population. However, as an "old expert" who has been in the real estate industry for 15 years, I must tell you: this is a fatal misunderstanding.
In Hong Kong, a highly intensive city, the relationship between residential and office buildings is like a "connecting tube". The boom in the office market is the "duchess in the coal mine" (early warning indicator) of overall economic health. Today, we will dismantle the invisible connection between the two in depth and see why the high vacancy rate of office buildings may be a "grey rhino" that cannot be ignored in the residential market.
Part One: Analysis of Core Concepts - Wealth Effect and the Collapse of the Demand Chain
Why are office buildings unrented and residential buildings also vulnerable? There are three layers of progressive logic behind this:
1. Loss of purchasing power and “high-paying jobs”
Office tenants are mostly from high-paying industries such as finance, professional services, and technology. When the office vacancy rate rises, it means that such companies are downsizing, freezing expansion, or simply moving out of Hong Kong. Employees in this type of industry are the “main force” in buying houses in the total price range of 10 million to 30 million (mid-to-high-end residential properties) in Hong Kong’s residential market. With fewer high-paying jobs, fewer people can afford housing.
2. Reverse transmission of the “wealth effect”
Many residential property owners are themselves small and medium business owners or commercial property holders. When the commercial market is sluggish, their industrial cash flow or commercial rental income will be significantly reduced. In order to save their main business or fill the financial gap, they often choose to sell their "owner-occupied properties" or "investment residences". This kind of "forced listing" is a major drag on residential housing prices.
3. "Chain collapse" of surrounding service industries
Office buildings are the consumption base for hundreds of thousands of white-collar workers. If the office buildings are empty, surrounding restaurants, retail stores, and even small service shops will lose their livelihoods. The owners and employees of these shops are also potential tenants or buyers in the residential market. This chain effect will spread the economic chill from Central to the livelihood markets of all districts in Hong Kong.
:::tip 💡 Expert Tip: Pay attention to 'mixed-use commercial and residential areas' (such as Wan Chai, Sheung Wan, Tsim Sha Tsui). The residential value in these areas is extremely dependent on business traffic. Once the area's commercial office appeal declines, the rental potential and asset value of its residential properties will be the first to feel the downturn. :::
Part 2: Practical Case Sharing—House Price Performance When “Business Districts” Lose Their Charm
Let’s look at a real case in East District of Hong Kong Island.
Case Study: Linkage between Quarry Bay and Taikoo Place
Taikoo Place is Hong Kong's famous non-Central commercial core. Over the past decade, the steady expansion of Taikoo Place has driven the rents of surrounding residences (such as Taikoo Shing and Kornhill Gardens) to remain at high levels for a long time, because a large number of high-paying white-collar workers want to "walk to work". Recent Current Situation: As some major foreign banks downsize, the vacancy rate of office buildings in the area has increased. Expert Analysis: You will find that although the fundamentals of these residences have not changed, the "rental period" has obviously lengthened. A unit that used to rent out in 2 days may now have to wait 2 months. This weakening of the rental market is often a prelude to falling house prices.
Pro-tips:
If you want to evaluate the "commercial safety factor" of residential properties in the area before buying a house, you can observe the following two points:
- Office building grade: The vacancy rate of Grade A commercial buildings is more iconic than that of Grade B. If even top companies are not renting, it means that the economic structure is undergoing qualitative changes.
- Lunch time crowd: Go to the target area to see the queues at lunch restaurants. The stronger the flow of people, the more solid the employment population in the area, and the stronger the support for housing.
:::highlight 🚀 Key Data: Historical data backtesting shows that every 5% increase in the vacancy rate of Grade A office buildings in Hong Kong is usually followed by a shrinkage of about 8%-12% in the residential market transaction volume within the next year. :::
Part 3: Considerations and Risks – Which homes are most affected?
Although the impact is widespread, some properties are "hardest hit":
1. Serviced residences specializing in "business travelers/expatriate executives"
The vacancy rate of this type of property is 100% linked to the office demand of multinational companies. If the commercial sector is in a downturn, multinational companies will reduce their "expatriation allowances", and this type of high-end residential properties with high rents will see a "wave of collective withdrawals."
2. "Single-building boutique new development" located in the core of the business district
Many new projects feature "a 5-minute walk from Central". But if Central ceases to be a magnet for the global financial elite, the “geographical premium” of such properties will collapse in an instant. For owner-occupiers, if living in a noisy commercial center cannot be exchanged for convenience, it is better to move to the New Territories where the environment is better.
3. "Purely business supporting area" that lacks livelihood supporting facilities
In the early stages of development, some areas rely entirely on commercial and office facilities. Once a shopping mall deteriorates due to a decrease in white-collar customers, the quality of living will decline accordingly, forming a vicious cycle.
:::warning ⚠️ Pitfall Avoidance Guide: Pay special attention to areas that rely on a 'single traditional industry' for support. For example, if 90% of the office tenants in an area are cryptocurrency companies or belong to a single industry, this 'high industry concentration' risk will directly transmit to the property prices in that area. :::
Conclusion: Real estate investment is a “total game”
In summary, the office vacancy rate is not a bunch of temperatureless numbers. It is a thermometer that reflects the city's vitality, employment stability and wealth flow.
If you're a residential investor, you have to look up and see the lights behind those glass walls. If the economical motor (office building) stalls, the comfort of the cabin (residential building) will not last long. In future macro analysis, taking the commercial and office market into consideration is a threshold that you must cross as a smart investor. According to the "old expert" in real estate, only by comprehensive observation can we avoid traps.
Call to Action
Has your company recently been considering downsizing its office space or implementing a longer-term approach to working from home? Has this affected your preferences when choosing a place to live?
If you want to know the "In-depth Correlation Analysis Report" on the current vacancy rate of office buildings and residential return rates in various districts in Hong Kong, or need to conduct a cross-risk assessment on the commercial/residential assets you hold, welcome to contact WeProperty's macro research team. We will provide you with the most forward-looking market insights to help you protect your wealth amid changes!
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