Hong Kong office landlords are becoming more wary of their renters amid continuing market volatility. According to reports, property owners are doubling and even tripling the security deposit they require of tenants at the start of the lease, in order to protect themselves from losses in case the tenant defaults or suddenly disappears.
Many landlords attribute the more stringent creditworthiness check to a souring economic outlook, particularly for Hong Kong and China, noting that they are forced to take a more cautious stance, writes the South China Morning Post. Some of them reportedly demand up to six months' worth of rent as a security deposit, in addition to a host of bank guarantees and background checks, particularly for tenants whom they do not know. Others have gone so far as being blunt that they are especially careful with renters coming from mainland China, who have often been linked to cases involving the non-payment of leases and packing up without notice.
In the past, tenants from mainland China were the largest occupants of rental property in the city, though this has since changed after the Chinese government tightened liquidity and started cracking down on overseas remittances. Even large enterprises as HNA Group let go of its five-floor set up at the Three Exchange Square to reduce expenses. The situation is worse for those smaller private firms who have literally walked away from their leased properties.
A related article by the SCMP did note that Hong Kong is the most expensive city in the world in terms of rental fees for commercial properties. This remains so to this day even as companies are already trying to look for cheaper spaces outside of the city center. Some of its most prime spots include the One, Two and Three Exchange Square, Chater House, Alexandra House, with rents costing around US$305 per square foot.
According to property consultant JLL, tenants from mainland China occupied some 275,000 square feet of prime space in Central in 2018 - its lowest in four years. With the China-US trade war expected to put more tension on markets in the next months, analysts expect that monthly rental fees would drop by around 4 to 6 percent in 2019. Still, property owners are extra strict when it comes to who will be occupying their spaces, adding that the legal risks and cost of dealing with renters who do pay is greater - so largest deposits act as a good-enough shield.
