Building blocks in place for area's success
With a growing stock of quality office buildings at competitive rents, East Kowloon has emerged as a new magnet for local and international companies seeking to build their presence in Hong Kong and the region.
The district's increasing popularity as a hub for commercial and business activity has also been bolstered by limited space in core locations, such as Central, Wan Chai and Tsim Sha Tsui, where office costs are much higher.
The development of East Kowloon is concentrated in Kwun Tong and Kowloon Bay, two key sub-districts previously occupied by old factory and industrial buildings. A major transformation has taken place there over the past decade with the redevelopment of vacant factories into industrial offices or office towers. The pace of office development has taken off, particularly in the past few years as Hong Kong's economy regains its momentum, and redevelopment projects are accelerated to tap the expansion of local and international businesses. New office buildings recently completed, or in the pipeline, include Enterprise Square5, Exchange Tower, One Kowloon and Manhattan Place in Kowloon Bay and Kwun Tong 223, Landmark East and Millennium City6 in Kwun Tong.
Fiona Ngan Wai-ping, regional director and head of markets for Kowloon at Jones Lang LaSalle, said East Kowloon had become a new commercial hub in Hong Kong with a strong portfolio of quality office buildings, and more being built.
'The new office buildings in East Kowloon are attracting more companies in different business sectors. In the past, active tenants in the district were often trading firms and those in sourcing and merchandising businesses. Today, the tenant mix is more established and diversified,' she said.
'We have seen the relocation of more companies in the banking, accounting, retail, travel and other sectors to East Kowloon.'
Big names that have either moved to or consolidated their operations in East Kowloon include Standard Chartered Bank, Bank of East Asia, Hang Seng Bank, PricewaterhouseCoopers, Industrial and Commercial Bank of China, MTR Corporation and Dah Sing Life.
Simon Lo Wing-fai, director of research and consultancy at Colliers International, said East Kowloon's development as a new business district had been driven by good town planning and infrastructure initiatives.
'Together with the development of the old Kai Tak airport site, East Kowloon should see strong growth potential,' he said.
Mr Lo said the office market in East Kowloon had recorded a steady rental income growth in recent years with the arrival of more quality tenants, such as government departments and banks, who had consolidated their back-office operations there.
He said the monthly rent for gradeA offices in East Kowloon of about HK$27 per sqft was attractive to tenants compared with rents in traditional business districts on Hong Kong Island. 'Despite an increase in the new supply in 2008, developers and landlords are largely confident about the future growth of the office market in East Kowloon. New supply in East Kowloon provides an inexpensive alternative for office tenants who need to expand their businesses. However, some individual occupiers remain hesitant because the district is still transforming from an industrial area to a decentralised business hub.'
There is a large rental gap between core and non-core office locations. Grade A office rents are about HK$90 per sqft a month in Central, HK$55 to HK$58 per sqft in Wan Chai, HK$40 to HK$60 per sqft in Causeway Bay, and HK$50 per sqft in Tsim Sha Tsui, according to Ms Ngan. The average rent in East Kowloon is about HK$20 per sqft. Apart from the attractive rents, Ms Ngan said the high quality of new office buildings in East Kowloon was another key factor drawing tenants across the harbour.
'Tenants are impressed by the quality of new offices in the district, especially when compared with some aged properties in other areas which feature less than sufficient building facilities. New grade A office buildings in East Kowloon provide a good range of modern specifications such as raised flooring, higher ceilings and the use of upgraded curtain walls allowing more natural light in the workplace.'
Ms Ngan said the extremely low vacancy rates of offices in core districts meant that relocation was an inevitable alternative for companies that were expanding, and the new supply in East Kowloon offered plenty of suitable properties for them to choose from.
'Several companies have moved into the district, and this will create a cluster effect and make East Kowloon more attractive to tenants. Even companies on Hong Kong Island have the district in mind when they consider relocations,' Ms Ngan said.
'The prospect for East Kowloon is promising, with the district's massive developments such as Yue Man Square urban renewal project and the Kai Tak redevelopment.
'The district is poised to grow as another key commercial hub in Hong Kong, next to Causeway Bay and Hong Kong Island East. The mix of tenants will become more diversified and internationalised,' she predicted.
