Hong Kong's small landlords turn to co-working, student hostels to survive

"The persistent 'flight to quality' creates a profound and escalating challenge for owners of older, non-prime office buildings. As corporates from high-value sectors consolidate into modern, ESG-compliant buildings, the demand for secondary space contracts to smaller local businesses, back-office functions and start-ups - all of which are highly price sensitive and have more options."

"For [many] landlords, asset obsolescence is no longer a distant risk but an immediate threat to cash flow and asset viability. With some 3.5 million sq ft of new premium office space expected to be completed this year and next, on top of the 4.5 million sq ft added in 2024 and 2025, tenants are increasingly choosing to relocate to new and modern offices."

Hong Kong's office market faces significant structural challenges as 3.5 million square feet of new premium office space completes this year and next, following 4.5 million square feet added in 2024-2025. Tenants increasingly relocate to modern, ESG-compliant buildings, creating a 'flight to quality' that devastates owners of older, non-prime properties. Secondary space demand shrinks to price-sensitive local businesses, back-office functions, and startups, forcing landlords to offer substantial rent concessions. Asset obsolescence now poses immediate threats to cash flow and viability for non-premium asset owners, prompting conversion strategies into alternative uses like co-working spaces and student accommodation.

Read at South China Morning Post