The ViewIn Hong Kong’s trade-war-proof office rental market, it makes sense for companies to go east

Rents in the office market remain sky-high, and companies are fleeing to Hong Kong East and Kowloon East. Although rental growth in Kowloon East has risen as a result, the district should still be more cost-effective than Central

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The average age of office buildings in Kowloon East is expected to fall to five years by 2026. Photo: SCMP

Published: 3:00pm, 11 Mar 2019Updated: 10:26pm, 11 Mar 2019

Hong Kong’s economy might have slowed last year, hit by the fallout from the trade war and multiple increases in American interest rates, but rents in the city’s office market remain at record highs.

In its latest Premium Office Rent Tracker published last December, Jones Lang LaSalle, a global real estate firm, found that average total occupancy costs – the net effective rent, combined with additional costs such as taxes and service charges – for prime office buildings in Central reached US$338 per square foot per annum in the third quarter of last year.

That was 75 per cent more expensive than in London’s West End and 60 per cent pricier than in New York’s Midtown, JLL noted. Submarkets in three cities in China – Hong Kong, Beijing and Shenzhen – now account for four of the world’s 10 most expensive office markets, pushing occupiers to move to cheaper secondary locations.

The trend towards decentralisation is most pronounced in Hong Kong – which vies with Singapore for the mantle of Asia’s premier financial hub – where discounts between core and secondary locations are also the largest among the gateway cities tracked by JLL. According to the firm, Hong Kong East and Kowloon East, two emerging office submarkets, are respectively 64 per cent and 76 per cent more affordable than Central. This compares with discounts of 45-50 per cent for secondary markets in London and New York.

Part of the reason for Central’s sky-high rents is strong leasing demand for Grade A office space from mainland financial firms, although this take-up rate fell last year due to Beijing’s stricter capital controls. However, the main factor in the high occupancy costs is the historically low levels of new supply in Hong Kong’s office market, even in non-core areas.