Leasing momentum slowed during Q4 2018, partly due to the lack of new supply. Net absorption fell from 1.3 million sq. ft. in Q3 2018 to 152,000 sq. ft. in Q4 2018. FY 2018 net absorption reached 3.0 million sq. ft., the highest since 2010. Over half of leasing activity was registered in new buildings.
Leasing demand from Chinese financial institutions remained weak, with such firms accounting for just 18% of leasing volume in core locations in Q4 2018, compared to 28% recorded in Q3 2018. On the other hand, agile workplace operators remained active, led by large operators presumably seeking to leverage economies of scale.
Rental growth decelerated amid the weaker leasing demand. Central rents climbed by just 0.6% q-o-q in Q4 2018, bringing annual rental growth to 7.1% y-o-y. Rents in the decentralised submarkets of Hong Kong East and Kowloon East edged up by only 1.3% and 0.8%, respectively, which translated to annual growth of 11.0% and 6.7%, respectively.