Rent squeeze has long way to run

Investors and landlords will have to sit tight as long as the current weakness in Hong Kong office rents continues, say industry experts. With negative internal and external factors influencing the market, especially for grade-A office buildings, the situation is thought unlikely to improve in the short-term.

Even when the wheel starts turning, the explosive rents achieved in 2000 may have gone the way of the dotcom bubble, they say.

Neil Galliford, executive director of corporate services at CB Richard Ellis, says the state of the world economy, coupled with the amount of supply coming on stream, represents a double whammy for Hong Kong.

'The amount of new supply we are experiencing is much lower than in the past.' he says. 'For example, in the prime office districts of Wan Chai, Causeway Bay, Tsim Sha Tsui, Admiralty, and Central, the average supply for 1992 to 2000 was 1.4 million square feet per year, whereas between 2002 and 2006, it will be only 700,000 square feet.

'However, when you look at Central in isolation, and next year in isolation, there is an imbalance between supply and demand. One building alone, Two International Finance Centre [2IFC], at 1.5 million square feet and due to come on next year, has significantly more than the average take-up for Central.

'You might compare this with the situation in 1998 and 1999, when we had 1IFC and Cheung Kong Center coming on at the same time. But the difference then was that, although we were experiencing a financial crisis in Asia, the global economy was quite healthy.