Hong Kong lags London in office leasing costs

Hong Kong lost its position as the world's most expensive place to lease an office to London's West End last year as tenants fled pricy Central for more affordable areas.

A study by property consultancy DTZ found annual grade A office occupancy costs in Hong Kong dropped 12 per cent year on year to US$22,190 per workstation in 2012, the second-most expensive in the world.

The figure dropped mainly because high rents and the stormy world economy forced tenants to cut costs by downsizing or moving outside the central business district.

"There is new supply in areas outside [the CBD] such as Hysan Place in Causeway Bay and other offices in Kowloon East. Companies that need a lot of floor space and don't need to stay in Central moved to other areas to lower occupancy costs," said David Ji Yanxun, head of Greater China research at DTZ. He said 1.5 million square feet of new office supply was added in Hong Kong last year, most of which was in Kowloon East.

"Hence rents in Central softened last year," Ji said, adding that worries over the global economy also caused tenants in Central to try to cut operating costs.

London's West End reclaimed its title as the world's priciest district despite its rents remaining stable last year at US$23,500 per workstation annually, the report found. Geneva was third and Tokyo fourth.

Beijing, which had the mainland's priciest offices, was 28th, with annual occupancy costs at US$10,410 last year.

Globally, average rent for grade A offices increased 1 per cent to US$7,495 per workstation in 2012, the study found.

The report surveyed 126 business districts in 49 counties worldwide, ranking each location based on costs per workstation in a year. The figure includes rent and other expenses such as maintenance costs and property taxes.

DTZ expects stronger growth in occupancy costs in Hong Kong in the next two years. It forecasts the costs will rise at 7.9 per cent per annum from the end of last year to next year, with a more stable economic outlook and tight office supply in Central having a rebounding effect on rents.

"I think office rents in Central should remain stable this year after the decline last year, as the mainland economy is still doing quite well and with some mainland companies still looking for offices in Hong Kong," Ji said.

He added that monthly rents in Central, now at HK$103 to HK$104 per square foot on average, should climb again in the middle of this year to about HK$108 per square foot by the end of the year.

Daniel Wong Hon-shing, chief executive at commercial realtor Midland IC&I, said that as stock and financial markets had improved more companies would begin looking for premises again this month.

"The decline in prime grade A office rents should have ended and will remain stable this year, while for grade A strata title buildings, rent may jump by 10 per cent," Wong said.