I take issue with the findings on the future of Hong Kong office rents from the Singapore brokerage firm UOB as reported in the South China Morning Post, on December 4.
I believe that Hong Kong's ability to provide businesses with affordable rents is important to its future so the prospect of a period of subdued office rents is not totally unappealing. However, there are flaws in the UOB report which drive it to unduly pessimistic conclusions.
While the supply side of UOB's equation over the next three years correctly highlights the availability of considerable space in Central through 2005, its take on the demand side is erroneous. The graph in the article shows a downward trend for office take-up, but it is two years out of date. Indeed the downward trend continued through last year reaching its nadir in the last quarter of 2001. Since then the take-up trend has been gradually improving (as readers can see from the graph below) to give a positive net take-up figure for grade A space on Hong Kong Island for the first time since the middle of 2000. This does not represent 'collapsing demand'.
Our expectations at Debenham Tie Leung (DTZ) going into 2003 are for a relatively neutral net take-up so reducing UOB's expectation of 'another 5.67 million square feet of grade 'A' offices' to a point much closer to the amount of such new space coming to the market - less than three million square feet.
This is still a significant number and will need a revitalised economy to enable rent stability to take hold but, with improved gross domestic product figures from the US and Hong Kong economies, such a scenario is not fanciful.
With no further Central developments on the horizon beyond AIG tower in early 2005, neither is the prospect of rising rents in 2006 and for the rest of the decade.