Sky-high office rents in the city's prime Central and Admiralty districts have squeezed more businesses out of the area, according to a report released Tuesday by property consulting firm DTZ.

It added that Hong Kong's central business district (CBD) should more accurately be termed as the central financial district (CFD) as its tenants are basically only financial and professional firms.

According to data provided by DTZ, after a robust fourth quarter in 2010, office take-up fell throughout the city during the first quarter with Central and Admiralty recording the biggest drops. Surging rents and seasonal factors were cited.

Take-up in the prime Central/Admiralty dropped almost 26,400 square feet in the first quarter compared with a gain of 50,900 square feet in the previous three months. However, the average rent in Central/Admiralty has climbed to HK$113 per square foot, and HK$145 per square foot a month for AAA buildings, an increase of 37.8 percent and 38.1 percent respectively from a year earlier.

Mark Price, DTZ's head of business space, Greater China, said it is now outdated to term the tenants in Central/Admiralty as belonging to the financial, insurance, real estate and business services sectors since the insurance industry has set up a new stronghold in Kowloon East. Meanwhile, the CBD has narrowed the scope of its business to financial and professional firms such as banking, wealth management, hedge funds and law firms focusing on initial public offerings.

"The surge in rentals in Central/Admiralty was quite steep, with some buildings breaking new rent records in this quarter," said Price.

After climbing 45 percent and 60 percent from a year earlier, average office rents in Kowloon East stood at HK$29 per square foot and HK$32 per square foot for AAA buildings in the first quarter, which is still about a quarter of that in Central and Admiralty.

The average rental in Island East also went up 38.5 percent to stand at HK$36 per square foot in the first quarter.

Alva To, DTZ's head of consulting for Greater China, said that as Central and Admiralty's rents continue to surge, sub-markets such as Wan Chai and Causeway Bay are expected to be more active this year, though there is a smaller stock of grade A office stock.

To is in favor of the trend of decentralization, adding that Hong Kong's fast and convenient transportation system is an advantage compared to other large cities such as Shanghai and Beijing.

China Daily

(HK Edition 04/13/2011 page3)