Office rental

Hong Kong’s Central remains the world’s most expensive office address for the third straight year

PUBLISHED : Thursday, 28 June, 2018, 8:03am
UPDATED : Thursday, 28 June, 2018, 8:18am

Hong Kong’s Central district was the world’s most expensive office address for the third consecutive year, as an influx of mainland Chinese financial firms overwhelmed the city’s supply of grade A space and drove vacancy to a three-year low.

The average annual rent in Central rose to US$307 per square foot, 30 per cent more than the US$235 per sq ft in London’s West End in second place, and almost 53 per cent higher than the US$201 per sq ft at Beijing’s Financial Street in third place, according to a report by CBRE.

“The supply [of office] in Central continues to be low, thus smashing the record is just a matter of time,” said James Mak, district sales director at property broker Midland Commercial.

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It’s a good time to be an office landlord, as vacancy in Central dropped to 1.1 per cent, the lowest since the third quarter of 2015, according to CBRE. The lease among the city’s grade A1 buildings such as the International Finance Centre (IFC) and Cheung Kong Center have risen by 1.7 per cent to HK$176.7 per sq ft, less than 5 per cent from a 2008 record , according to data by JLL.

“Banking and finance continued to be the key drivers of demand, particularly by mainland Chinese companies,” said CBRE Hong Kong’s executive director Alan Lok.

Mainland companies including HNA - the parent of the country’s fourth-largest airline and one of the biggest overseas asset buyers - are determined to make a statement when they set up shop in Asia’s financial hub.

They tend to be more decisive and more aggressive in bidding for the most sought-after addresses, agents said. And companies that serve a China clientele, or which need to access the mainland regularly, do so from Hong Kong, a geographic advantage over other global cities.

“They are determined,” said Ben Dickinson, head of agency leasing at JLL Hong Kong. “They are willing to pay a higher rent. They usually look at three or four options, and the top person can make the final decision, and seal the deal within a couple weeks.”

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The record rental charge is forcing many multinational companies, including law partnerships, accounting firms and the middle and back offices of even the largest banks to move out of Central to other suburbs.

Goldman Sachs will move its back office to Causeway Bay’s Lee Garden Three in December, from The Center in Central, which was sold last November for a record HK$40.2 billion (US$5.12 billion). The investment bank will maintain it client-facing office at Cheung Kong Center in Central.

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Financial Street, located on the western fringe of China’s capital city, climbed three ranks on the CBRE list to surpass Kowloon, Beijing’s central business district (CBD) and Midtown Manhattan.

“Financial institutions and professional service companies, like law firms, are straining for space in the same neighbourhood as the top policy institutions like the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission,” said Joe Zhou, head of research at JLL China. “Rent, no matter how high it is, is not really a concern.”

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Elsewhere around Asia, the top 10 office markets comprised Marunouchi-Otemachi in central Tokyo at US$171.5 per sq ft, and New Delhi’s Connaught Place at US$153 per sq ft.