Firms seek modest locations
Surging Central rents force cost-sensitive companies to move out
With rents of grade A office space in Central continuing to surge, some tenants are beginning to move out of their prestige addresses to decentralised areas.
While the growth of the finance and insurance sectors will continue to keep banks and finance companies in Central, they are also looking for a more cost-effective solution to expand or relocate their back-office operations and support functions from higher-rent locations, according to property consultants.
Joining the moving trend is finance services company Convoy Financial Group, which plans to move out of its 85,000 square foot head office at One Pacific Place in Admiralty. The company's lease will expire in November next year.
'We are looking for new offices of 100,000 square feet with rentals of below HK$40 per square foot,' said a Convoy spokeswoman.
The company is looking at a number of buildings, including International Commerce Centre (at Kowloon Station) and offices in Quarry Bay.
She declined to reveal the existing rents, but average rental at One Pacific Place is $80 per square foot.
Property agents said that the Mandatory Provident Fund Schemes Authority had leased one office floor of 15,000 sqft at Metro Place in Kwai Fong for expansion.
The authority rented three office floors in One IFC in Central before rents rebounded in the second half of 2003.
If the authority expanded in One IFC, they would have to pay rent of more than HK$80 per square foot, which was more than double the existing rent, property agents said.
Consultants said Hong Kong rents had gone from record lows to record highs within one three-year lease contract. That has driven some cost-sensitive companies, such as software and networking companies, away from Central to relatively more affordable decentralised areas.
Industry sources said software company Juniper Networks (Hong Kong) would move from its 21,000 sqft office at ICBC Tower of Citibank Plaza in Central to a 26,000 sqft office in Cityplaza One in Taikoo Shing. The move would cut company rental expenses by about 30 per cent, according to sources.
Simon Wong of CB Richard Ellis said the trend was being driven by the rising rents in Central, fuelled by a strong economy, limited space and high demand.
Rental in Central rose 12 per cent to an average of HK$94 per square foot in the first four months, according to CBRE.
'This has already exceeded our forecast for this year of 10 per cent,' Mr Wong said.
The new supply of quality buildings outside Central is also encouraging companies to move their offices.
New office supply totalling 10.5 million sqft would come on stream from now until 2010, Colliers International said.
Most of the supply will be in east Kowloon and the 118-storey ICC in the west, developed by Sun Hung Kai Properties and due for completion next year at Kowloon Station.
'Many tenants who are now occupying spaces in Central are looking at offices in ICC,' Mr Wong said.
Despite the rising rents, he expected multinational companies to continue to come to Hong Kong due to the economic growth and the city's office market which is seen as one of the most mature in the world.
As of the end of last year, the territory has more than 250 grade A quality office buildings, offering a total net floor area of about 78 million sqft, according to Jones Lang LaSalle.