Renting offices out of town
HONGKONG (comment, November 9): THERE may come a point when the cost of renting office space in Hongkong outweighs the benefits of having a business base here.
The territory's rental levels have yet to reach that benchmark. But when companies are being asked to pay $60 dollars a months for the area it takes to put a waste paper basket on the floor, accountants being reaching for calculators and strategic planners start looking for cheaper options.
Rents in Hongkong Land's Exchange Square buildings in Central have now reached that $60 dollar per square foot per month level, and an overall supply and demand imbalance has seen rents even in outlying areas reach more than half that figure.
Hongkong now ranks as the fourth most expensive city after Tokyo, London and Paris for office space, according to Colliers International's twice-annual office market survey.
The survey of 53 major cities around the globe found that a prime commercial tenant renting space in newly-constructed Class A buildings could pay as little as US$10 annually in Kuala Lumpur or as much as $176 per sq ft in Tokyo. Hongkong costs US$68 a year.
While rents in the territory are still at an affordable level for major international companies, we are now witnessing a knock-on effect.
Increasing office rent in the prime Central area have led to smaller companies, working on slimmer profit margins than the multi-nationals, being forced out to peripheral areas. Property analysts now talk about reference being brought to bear on Wan Chai and Causeway Bay rather than spiralling rents in Central.
Demand in these second line areas has increased dramatically as smaller businesses look for cheaper but still centrally-located addresses that will give them the prestige they are looking for.
Even the Hongkong Exhibition and Convention Centre office tower in Wan Chai, together with the huge Bank of China building in Admiralty, will fail to satisfy the demand for office space once they come on line next year.