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IN A MARKET where rents  are the third highest in the world, tenants have to consider more than 'location, location, location' when they lease offices in Hong Kong.

Cost is generally the first consideration, and the highest rents are at Two IFC  in Central (about HK$150 to HK$160 per square foot a month). This is perhaps the most prestigious address in town.

However,  that breathtaking rate can translate to HK$10 million a month for some of the most prominent occupants.

So it is hardly surprising that firms are increasingly looking beyond  Central to establish offices.

Rents could be  10 times cheaper in less fashionable Kwun Tong, said Gavin Morgan,  office market head at Jones Lang LaSalle, Hong Kong's largest international real estate consultancy.

In Quarry Bay, rents are closer to HK$25 per square foot, while North Point, Wan Chai and Causeway Bay are significantly less expensive.

'This is something that more organisations are picking up on,' Mr Morgan said. 'They are asking themselves whether they really need to be in Central,'

Whatever the asking price, rents still bear close examination,  he said.  'You have to be careful about the way landlords quote the available space in the first place,' he said.

'They may say they are leasing 10,000 square feet, but the amount of efficient, available space may only be 9,000 sqft. Some may also include the lobby, the lift shaft, shared toilets or cabling areas. It is very common for tenants to pay for these and some landlords include them, while others do not.'

Piers Brunner,  managing director of leading consultant Colliers International Hong Kong, said  the 'efficiency' of space was 'the biggest thing to watch out for if you are new to this market'.

He said the difference between usable and unusable space could be as great  as 25 to 30 per cent. 'Landlords vary significantly on how they calculate space, and it can make a lot of difference, depending on how many staff you need to accommodate,' he said.

Tenants are advised to double-check the square footage and possibly gain a rent negotiation advantage.

However, basic rent is only the start. Mr Morgan said.

'There are other charges to be considered - from management charges to government rates,' he said.

Tenants had to consider not only the cost of fitting out an office but also the cost of restoring  the premises to the original condition they found it when they finally quit the premises.

Some firms have no choice but to select top-price grade-A offices. Those that depend on high technology and complex computer systems, such as banks and finance houses, require state-of-the-art air-conditioning to prevent overheating. The height of ceilings was  another consideration.

'If you have hundreds of staff, low ceilings can get very claustrophobic,' Mr Morgan said.

Firms should also beware of the volatility of the rental market.

'The layman has to understand that Hong Kong is a highly volatile market and firms can get caught out by the relatively short-term leases,' Mr Brunner said.

'Rental values can move very fast. You can move in paying HK$30 per square foot and three years later, when it is time to renew the lease, find your landlord demanding HK$100. Tenants can get run over by the volatility when it comes to the next rent review.'

A notable case is Two IFC, where rents were HK$20 per square foot when the development opened in 2003.

There is also the tendency for leading Hong Kong landlords to almost monopolise certain districts. Hongkong  Land dominates much of Central, while Wharf is prominent in Tsim Sha Tsui, Swire in Quarry Bay and Sun Hung Kai in Kwun Tong.

'They manage their portfolios extremely well in their areas and closely control the rental rates. You can't tell them you will look next door if the rent they ask is too high because they own next door as well,' Mr Brunner said.

'Thinking about who you want to deal with and what management you want' was an important consideration when deciding on a base in Hong Kong,  Mr Brunner said.

On a macro level was the difference between buildings owned by a single 'on block' developer and those belonging to several 'strata title' owners.

'With many owners, it is difficult to agree on how a building should be run. You never know who could end up moving next door, so there are risks,' he said.

Mr Morgan said much of the concern could be alleviated at the contract stage. Negotiations could range from rental renewal to expanding offices and sub-letting.

'It is important to make sure you are protected with security and flexibility. This is why a lot of firms use professional consultants who understand this market.'



Rental cost the main consideration when deciding where to locate