Robust office leasing in East Kowloon over the first six months of this year has consolidated the district's role as an emerging business location. Companies across industries, including insurance, logistics, accounting, information technology and electronics, have moved into new buildings in the area. At the centre of leasing transactions are four major buildings completed over the past 12 to 18 months - Landmark East and Kwun Tong 223 in Kwun Tong, and Manhattan Place and Exchange Tower in Kowloon Bay. Many companies have opted to consolidate operations or relocate into new offices in the district. Big names include AIA, CSL, Nestle, PricewaterhouseCoopers, adidas, Manulife, Chevron, CIGNA and CMA CGM & ANL (HK) Shipping Agencies. The abundant supply of new buildings in East Kowloon, with office space available at highly competitive rentals, has proved a magnet to cost-sensitive companies and businesses looking to upgrade or consolidate their operations into better premises. John Davies, senior director of office services (Kowloon) at CB Richard Ellis, said there was strong leasing interest from tenants coming from Hong Kong Island in new office buildings in Kowloon, particularly East Kowloon. 'The tenant profiles of the new buildings in East Kowloon are strong and many of them are established tenants on Hong Kong Island. This will encourage other occupiers to really continue to focus on these buildings,' he said. Mr Davies said there was an obvious trend of companies moving from Hong Kong Island to decentralised locations in Kowloon over the past three years. 'Multinational companies are finding Kowloon an acceptable location with the presence of more credible buildings of a quality on a par with those on Hong Kong Island,' he said. Mr Davies said the global economic slowdown would even support leasing activity in East Kowloon as organisations became more cost-conscious. 'From a macro point of view, East Kowloon will benefit as what is happening globally will have a greater impact on Central,' he said, adding that the office sector in East Kowloon was close to finding a bottom level. As take-up subsequently increased, he said the pressure would ease on landlords to reduce rents further. Gavin Morgan, international director and head of Hong Kong markets at Jones Lang LaSalle, said office decentralisation was a trend that would continue in Hong Kong, while the office sector in East Kowloon would benefit with the supply of cost-effective buildings of exceptionally high quality. He said landlords were also offering competitive lease terms and creative packages, such as options to break or take up extra space for expansion. 'Rents in East Kowloon are attractive enough to draw tenants, particularly those looking for cost savings. The supply of more new buildings of high specifications has rapidly developed a critical mass and established the area as a major commercial district,' he said. 'Its position as a commercial district will be consolidated with the development of the old Kai Tak site and the new cruise terminal. As more infrastructure developments take place, East Kowloon will continue to improve and grow as a credible option for companies.' According to Mr Morgan, average office rents in East Kowloon stood at about HK$16 to HK$17 per sqft a month on net area basis as of April, compared with HK$24 to HK$25 in the second quarter of last year. Vacancy rates hovered around 25 per cent, compared with 15 per cent a year ago. The supply of new buildings in East Kowloon is expected to decrease sharply this year compared with the last two years when more than 5million sqft of new space came on the market. The only Grade A office building due for completion this year is a 250,000 sqft project by Sun Hung Kai Properties in Hoi Bun Road, Kwun Tong. New Grade A supply next year will be mainly Billion Development's project in Wang Kwong Road, Kowloon Bay, providing more than 450,000 sqft. In 2011, new supply is expected to rebound to nearly 1million sqft with three new projects - the Po Hing Centre redevelopment in Kowloon Bay and two other projects in Kwun Tong. Simon Lo Wing-fai, director of research and advisory at Colliers International, said office relocation would be justified in financial terms if there was a rental difference of more than HK$12 to HK$15 per square foot. He estimated the net effective rental at East Kowloon was HK$16.56 per sqft as of May, compared with HK$26.34 in Island East, HK$34.69 in Wan Chai, HK$36.21 in Causeway Bay and HK$68.29 in Central. 'It is justified for office relocation from Wan Chai and Causeway Bay to East Kowloon since the rental difference can cover relocation costs and provide additional rental savings,' he said. 'Relocation from Central to East Kowloon is not the market trend. It is financially justified but tenants would choose to stay in Central. They might downgrade or downsize to second-tier buildings within Central to save costs but would not relocate.' Mr Lo said tenants moving into East Kowloon included insurance and non-finance companies that were not location-sensitive, multinational corporations with sizeable floor area requirements, companies looking for similar quality premises at lower rental cost, and those in need of sufficiently large premises for consolidating their operations under one roof. Looking ahead, East Kowloon is poised to change for the better with a series of urban redevelopment and infrastructure programmes. Mr Lo said East Kowloon would transform from a traditional industrial district to an emerging business hub, partly boosted by the revitalisation of Kwun Tong town centre. This redevelopment is due to be completed in five phases by 2021, under the auspices of the Urban Renewal Authority. More hotel and retail facilities will be available in Kwun Tong in new ventures, such as a 258-room hotel in Chong Yip Street and a 395-room hotel in Hung To Road. Henderson Land also recently submitted an application for the redevelopment of its Big Star Centre, on Wang Kwong Road, into a 504-room hotel. More retail and entertainment facilities are also expected to be built after the completion of the cruise terminal at the old Kai Tak airport runway and the proposed light rail transit in the district.