Buildings in the Central district of Hong Kong. Data shows that office rents in Central increased another 8.6 percent quarter-on-quarter to average HK$120.6 per square foot a month in the first quarter. Mike Clarke / AFP

CBRE report highlights city's scarcity of supply

Office rents in Hong Kong jumped 25 percent on average in the first quarter and HK$120.6 per square foot per montht in the prime Central district, according to a report by CB Richard Ellis (CBRE).

The report highlights the issue of insufficient supply as well as the need for the city to adopt a comprehensive master plan for the office market in order to keep its status as an global financial center.

Such an approach is needed to create locations or destinations, rather than just focusing on buildings outside the current Central area, Edward Farrelly, director of CBRE research for Hong Kong, Macao and Taiwan, told reporters at a media briefing on Tuesday, citing the importance of cost reduction to global organizations and the rise of competing locations within Asia.

Hong Kong has the most expensive rents in the world for top tier offices and has surpassed the levels in other international economic centers including New York, London and Tokyo, according to the real estate broker.

Data shows that Central rents increased another 8.6 percent quarter-on-quarter to average HK$120.6 per square foot in the first quarter, while rents in the district's top-tier buildings increased a mild 2.6 percent due to already sky-high rents and greater rent differentials with competing districts.

"Even multinationals like finance and insurance companies no longer have to be at the prime central or CBD in Hong Kong, and they are also considering opportunities elsewhere," said Farrelly.

The Hong Kong Grade A office market is anticipated to post further growth in anticipation of a sustained imbalance between supply and demand in the marketplace, Colliers Internationals said in a report released the same day, projecting the city's office rents to increase another 25 percent over the next 12 months.

"A number of medium-sized tenants have been migrating to the adjacent business districts such as Wanchai and Causeway Bay, where rentals remain relatively low," said the study.

According to another research report by Cushman & Wakefield provided to China Daily, more and more small-to-medium businesses have also been responding to rising occupancy costs in the core districts by relocating to secondary locations such as Hong Kong East and Kowloon East.

Not favoring the introduction of large swathes of new space onto the market in an uncontrolled fashion, CBRE believes a wider selection of available space would be appreciated as demand varies in regards to the type and quality of offices, as well as in terms of rental prices.

Besides location and the building itself, occupants will also consider the surrounding environment or even opportunity cost when looking for offices, said CBRE, advising the city to put all these issues on the agenda and provide incentives for alternative solutions to be sought in new office areas.

This approach will not result in a mass movement away from Central in the short term or a drop in rents, but a gradual change in the occupant base. It may lead larger organizations to look for more cost-effective locations in other parts of the city and lead to a certain convergence in rent levels, said CBRE.

China Daily

(HK Edition 05/18/2011 page2)