HK's tallest building gets rent to match

Office rents in Hong Kong's tallest skyscraper, Two International Financial Centre (Two IFC), have been raised to more than $100 per square foot - a fivefold increase on the $20 per sq ft at which the development first came to the market when it opened for business in the first half of 2003.

As befits the highest building in Hong Kong - at 88 floors and 420 metres - the rents remain the highest in the city after the latest adjustment from $93 per sq ft.

Launched at the bottom of Hong Kong's property cycle, the IFC complex, developed by Sun Hung Kai Properties and Henderson Land Development, could find tenants only by charging an effective rental of $20 per sq ft after taking into consideration rent-free periods offered as an inducement.

But the economic recovery since Two IFC's opening has driven Grade-A office rents up more than 120 per cent in the past two years.

Midland Realty assistant sales director Eric Ong Hung-chung believes tenants who got in early now face rent rises of between 140 and 180 per cent when their leases come up for renewal in the middle of this year.

The property agency said IFC's landlord had rented a small unit in One IFC on a high level for $93 per sq ft last month and the asking rental for a 2,000 sq ft unit on the 67th floor was now about $98 per sq ft.

Henderson Land sales department general manager Tony Tse Wai-chuen said asking rentals at Two IFC had now risen to over $100 per sq ft due to the shortage of office space in Central.

The landlord is targeting international financial institutions and finance-related firms as key tenants in Two IFC. Such tenants were difficult to entice during the launch of the complex and the landlord had to subdivide some floor space into smaller units targeting small and medium-sized firms instead.

'But nowadays, most of the tenants in Two IFC are international financial institutions and finance-related companies,' said Midland's Mr Ong. 'Despite the fact that office rentals have risen over 120 per cent in the last two years, finance-related companies have become willing to pay the higher rentals to stay in Central Grade A office space.'

The small and medium-sized firms that had rented small units with lower rental level in 2003 might now be forced out of the building, due to the twofold to threefold rent rises, he added.

Property agents said that six tenants had moved out of One IFC in the past six months because their rentals were raised by between 130 per cent and 140 per cent when their leases came up for renewal. The average rent in One IFC was now $60 to $70 per sq ft, they said.

Alva To Yu-hung, director of consulting and research at DTZ Debenham Tie Leung, said that office rents in Central had increased by more than 120 per cent. According to the company's research, Hong Kong was now the third most expensive business location in the world and the most expensive site for business premises in Asia.

Mr To said the recovery of the economy and the shortage of office supply in Central had driven the rent increases and said he believed that Grade-A office rents in Central would rise a further 15 per cent to 20 per cent this year.