'The main reason for the growing demand for office space in Kowloon Bay is that rents in core business districts are just too expensive at present,' said Tom Tong Kwan-ki, an executive director at Kerry's MegaBox Development, part of Enterprise Square Five.

'The new commercial premises in the district are not only filling up the shortage of supply in traditional CBDs, but also helping companies to save more than half of their rent.'

Mr Tong said Kerry was now in talks with several anchor tenants who were interested in taking whole floors or multiple floor space in the remaining tower of its new project, with prices averaging about $20 per sq ft.

Potential tenants were in logistics, trading, electronics and shipping, and were located outside Kowloon Bay, including Tsim Sha Tsui and Causeway Bay.

Hong Kong was ranked the third most expensive business location among 117 global cities last year, with annual office occupancy costs increasing 61 per cent to US$107.20 per square foot, according to a DTZ Debenham Tie Leung survey.

Hang Seng Bank last week graphically demonstrated the benefits of cost savings by leasing Tower 2 in Kerry Properties' Enterprise Square Five.

The lease is for 15 floors totalling 262,000 square feet for a fixed term of six years, with an option to renew for three years.

The company plans to relocate about 1,600 of its staff from its Hang Seng Building headquarters in Des Voeux Road, Central, by the end of next year. The Hang Seng Building has been sold to Morgan Stanley Real Estate for $2.25 billion.

The bank said it would rent the new office for about $17 per sq ft, 75 per cent lower than the average rent of about $70 per sq ft in Central.

'It is a good move by Hang Seng Bank to lock in those low-cost levels. Rents there are still at a steep discount [compared] to core locations,' said Simon Smith, senior director of research and consultancy at Savills (Hong Kong).

'The whole area is undergoing an upgrade. But the problem in the area is arguably its relatively weak internal linkages among buildings compared to somewhere in Island East, which is quite unified by the Swire portfolio.'

Kowloon East, which comprises Kowloon Bay and Kwun Tong, rapidly followed in the footsteps of Island East by targeting tenants wanting to move from Tsim Sha Tsui to reduce their office rental costs.

The old industrial area is undergoing a commercial makeover and is expected to be Hong Kong's third-largest office market with a supply of 10 million sq ft by 2010, compared with about 5 million sq ft at present, according to Savills' data.

Kerry Properties is part of Kerry Group, the largest shareholder in the SCMP Group, which publishes the South China Morning Post.