A wealth of new office space will be possible on land still to be reclaimed
THIS year is likely to go down as the year the Kowloon office market came of age.
A string of classy new Grade A office buildings will come on stream in Tsim Sha Tsui during the year, possibly changing the make-up of the district's business community forever.
Textile, toy and trading companies - which have traditionally formed the lifeblood of the Tsim Sha Tsui office sector - are being edged out by wealthier service sector companies who are prepared to pay higher rents; but lower than those on Hong Kong island.
They are being lured out of their traditional homes in Central by a string of attractive new generation office towers which are now springing up.
The likes of The Gateway, Peninsula Office Tower, Park Lane Square and Playmates Tower are taller, arguably better and naturally more expensive than anything the district has seen before.
They are the product of developers taking advantage of the more relaxed maximum-height restrictions which have come with the redirection of the flight path of aircraft using Kai Tak airport.
Average Grade A office rents in Tsim Sha Tsui shot up 15.3 per cent last year and look set to soar at least another 60 per cent over the next two years, according to predictions from S.G. Warburg Securities (Far East).
Monthly rents of between $33 and $44 per square foot gross are being asked for space in Tsim Sha Tsui's new breed of buildings.
This kind of rent is proving prohibitive for some of Tsim Sha Tsui's long-time office residents, but are still cheap compared to the kind of rents now being asked in Central.
At the moment, an astonishing $100 per sq ft net is being asked for space in Exchange Square and Nine Queen's Road Central on Hong Kong Island.
It will be interesting to see whether their emergence will take some of the pressure off Central's soaring office rents should there be a flood of companies shifting their back-office operations across the harbour.
Many of the service sector companies decentralising to Tsim Sha Tsui have split their office functions.
Key staff are being kept in Central while non-core back-office workers are being shifted out into cheaper accommodation.
Even a few financial institutions have joined the trend, notably the Hongkong Bank and, more recently, the Standard Chartered Bank.
Japanese trading group Itochu Corporation is another famous name to recently give up the rich trappings of Central for Tsim Sha Tsui.
Other companies, like insurance group National Mutual, which already had a presence in Tsim Sha Tsui, have been opting to expand their office space on the Kowloon side rather than on Hong Kong island because of the cost benefits.
Hong Kong and Shanghai Hotels' new office tower above the prestigious Peninsula Hotel is now roughly 70 per cent committed, with $43 per sq ft the highest monthly rent known to have been achieved.
About 1.2 million sq ft of the total two million sq ft of prime office space coming on stream this year in Tsim Sha Tsui is in the first phase of Wharf Holdings' giant redevelopment, The Gateway at Harbour City.
About 10 per cent of the space has already been signed for, and another 40 per cent is said to be under negotiation.
Wharf is now asking around $33 to $34 per sq ft a month for space on lower floors, and up to $44 per sq ft for higher levels.
It is expected it will ask higher rents once the building starts filling up, a custom in Hong Kong.
Martin Kaye, Kowloon-based director of property consultancy Richard Ellis, said he expected The Gateway to be 80 per cent committed by the time it received the occupation permit for upper floors in July.
Playmates Properties' Playmates Tower in Canton Road is now roughly 30 per cent committed, while Miramar Hotel and Investment's Park Lane Square One is close to full.
The highest rents now being achieved for decent-sized space is comfortably $38 to $39 per sq ft.
Mr Kaye expected that by the end of this year larger occupiers would be paying new rents of around $46 to $48 per sq ft.
The prospect of strong rental income has prompted a string of developers to jump on the bandwagon and announce new Tsim Sha Tsui office projects.
Property analyst Michael Green, director of S.G. Warburg Securities (Far East), said: ''Tsim Sha Tsui is at a point where the more high-class offices built, the better.
''A large number of offices adds synergy to the economy of a district.
''Four or five years ago, when the first big office blocks were being built in Wan Chai, it was considered a backwater. Convention Plaza stood rather isolated. Now it is a much sought-after area.'' Early next year, the area will have Concordia Plaza coming on stream, providing an additional 800,000 sq ft of space, built by a consortium comprising Cheung Kong, Nan fung Development, Sino Land and Tai Cheung.
The CCECC building on Chatham Road, built by a mainland railway corporation, will also be ready for occupation.
In addition, a further 2.4 million sq ft will be provided over the next few years when further towers in The Gateway are completed.
Park Lane Square Two is to be demolished and, instead, additional floors will be built on Park Lane Square One.
A wealth of new office space will also be provided with land provided from the West Kowloon reclamation, which has yet to be parcelled out.
In addition, a string of hotel redevelopments into office space are also in the offing, including the Ambassador and Miramar hotels.
All these projects are going to lead to a flood of new quality buildings hitting the market around 1997 and 1998, perhaps causing some easing in the rental spiral.
The arrival of service sector office-users in Tsim Sha Tsui has coincided with a mini exodus of former Tsim Sha Tsui companies to cheaper emerging decentralised office districts like Sha Tin, Kwai Chung and Cheung Sha Wan.
The shift is expected to accelerate as more fashionable out-of-town office and industrial composite buildings are completed over the next few years.
Mr Green predicts another three years of rising rents, but Peter Churchouse, principal at Morgan Stanley Asia, expects just another 18 months before a sharp correction comes, prompted by an oversupply of new office space provided by the West Kowloon and Central-Wan Chai land reclamations.