Office demand in Hong Kong is becoming increasingly diverse
Converting older, existing space into something that is now in high demand is becoming a focus of building owners
Office demand in Hong Kong is becoming increasingly diverse and embracing this diversity is something property owners are looking at in order capture demand. There has been much focus recently on the record high rentals achieved in Hong Kong, highlighting it as the most expensive office location in the world.
However, new office districts are increasingly attracting tenants out of an overflowing Central, where offices are at a premium in both rental and space. Despite the potential moves of large occupiers, forced by rentals, there is huge untapped potential in older real estate surrounding some of Hong Kong’s most iconic buildings.
There is approximately 28 million square feet of government classified Grade B stock in Hong Kong. By improving just a small percentage of this to target a widening tenant base, it is possible for these buildings to tap into demand from newer tenant types seeking more flexible space, different management requirements and different working hours.
This creates sub-markets of demand for larger corporates who might want to identify new talent as well as widening their customer base. This creates a more diverse tenancy mix, to allow for vibrant, interesting and ultimately more livable and workable districts.
Hong Kong is well known as a city for pulling down old buildings and replacing them with new towers. More recently, Hong Kong has been witness to a number of developments that have been refurbished from Grade B stock to Grade A stock. Converting older, existing space into something that is now in high demand is becoming a focus of building owners. Nexxus Building, Infinitus Plaza, and Nan Fung Tower are good examples that are much more reasonable in value when compared to other high-specification, high-end “premium” assets, but now are able to yield a strong rental return.
These older buildings often have open floor plates with well-designed and modern interiors. These buildings regularly attract large international corporates that are either looking to move specific departments outside of “trophy assets” or a wholesale move dictated by cost, but are location sensitive.
Increasing demand for these value-sensitive buildings is now a primary criteria for many international tenants. By being proactive, landlords of Grade B stock can steal a march on this new demand cycle above their peers.
Reinvestment in older stock will allow existing peripheral office space to be relevant again and able to compete at a reasonable level to newer buildings, offering up greater opportunity for a changing workplace. We spend over two-thirds of our life working and those revitalised buildings that can create warm and welcoming workplaces are typically those with not only the most loyal tenants, but are also those willing to pay a premium to ensure tenure.
Co-working operators have made quite an entry into the office market in Hong Kong. Many are looking at a footprint of 30,000 sq ft as a starting point and at a price-point that does not match new-build rental expectations. This additional stock of “office space” is making for an interesting dynamic. Their presence signifies a shift in how tenants are now looking at space – increasingly about creating collaboration opportunities, with simple technology that is plug-and-play.
We are beginning to see retrofitted technology being installed in buildings that allows greater insight into how the building is being used. From smart-parking sensors, foot-traffic counters, semi-fitted, short-term offices and even tenant distribution mapping to ensure better collaboration. These new technologies are available to allow a landlord to ultimately provide a better service to tenants and their visitors.
Technology connections are allowing owners, brokers and end-users to conduct a full transaction entirely online from the process of sourcing through to viewing, signing binding documents and ultimately handing over premises through booking systems. This simplification of processes is being driven by the need for increasing efficiencies, the need for easy access and the increasing demands of the “now” generation where speed is key.
With the recent record land sale of the Murray Road car park site in Central and the subsequent spike in capital values, it is more important than ever to ensure that existing real estate is being utilised to its full potential. Handled correctly there is huge upside in reinvesting into older buildings, instead of simply tearing them down to replace them with the same gross floor area.
Commercial real estate is an undeniable part of our lives, and increasingly we need to think of the triple benefit to a building’s bottom line: social, economic and environmental. All of which affect how we view, think and use real estate. We are all looking to continue to drive Hong Kong’s competitiveness and liveability. With renewed focus on refurbishment, we can reduce waste, increase efficiency and bring life back to some of the forgotten streets of Hong Kong.
Stephen Bruce is head of premium leasing and management at JLL in Hong Kong