Hong Kong’s most expensive office The Center to lose first big tenant as Goldman Sachs set to move out

Hong Kong’s most expensive office building may be becoming too expensive for one of its top tenants.

Global investment bank Goldman Sachs is set to move out of The Center, a 73-storey tower in the city’s Central district that sold for a record HK$40.2 billion (US$5.15 billion) last year. The bank will head for a lower-cost location in the Causeway Bay area after its lease expires in December, according to several people familiar with the matter. 

The bank, the first top tenant to leave the building after the sale, may be able to cut its rental bill by up to 29 per cent in the move to Hysan Development’s newly completed Lee Garden Three, according to industry analysts.

“Due to limited supply, there is room for The Center to raise rents. When the new owner comes in, they have to raise rents when they renew leases with tenants,” said Thomas Lam, a senior director with Knight Frank.

Goldman would not be the first to reduce its presence in the Central area, where office rents are soaring. Already the most expensive city in the world to rent an office, Hong Kong’s offices are being snapped up by cash-rich mainland Chinese firms who are willing to pay for a Central location. 

Last year, French international bank BNP Paribas moved most of its back office staff to a cheaper location in Quarry Bay on the opposite end of Hong Kong Island. The bank will, however, maintain offices in IFC Two. Goldman will also retain its office in the Cheung Kong Center in Central. 

“Supply pressure is mounting, particularly in Central, with the vacancy rate dropping to 1.1 per cent, a new low since the third quarter of 2015,” said Marcos Chan, head of research for CBRE Hong Kong, southern China and Taiwan. 

“We believe the continuous strong demand and low supply could potentially push up Central rents by a further 5 per cent this year.”

Goldman would also escape the uncertainty that surrounds the new owners’ plans for The Center, according to James Mak, district sales director at property broker Midland Commercial. 

“There are a lot of investors and their plan for the building is not yet clear. They might divide some floors into small units and sell them, an arrangement that is not good news for financial institutions, which guard their high-end images,” Mak said.  

“Financial institutions usually prefer a stable working environment to moving around or being charged unexpected extra rents after renewing contracts.”

He added that Hysan did not raise rents a lot and paid attention to the portfolio of tenants, with a particular welcome for major companies. 

Mak sees the rent for the new office in Lee Garden at around HK$70 per square foot, compared with around HK$80 to HK$90 per square foot at The Center. Rents at The Center could be as high as HK$100 per square foot this year, he said.

Goldman Sachs will take five floors at Lee Garden, from the 22nd to the 27th, with a total area of 92,000 square feet, the sources said. It will move its back office there from the 30th, 32nd, 38th and 39th floors at The Center, totalling about 100,000 square feet, after seven years.

Goldman declined to comment, while a spokesman for Hysan confirmed only that the five floors had been leased, and declined to identify the new tenant.  

The Center, completed in 1998, is an entirely steel structure without a concrete core. Hong Kong’s fifth-tallest building, its lobby was featured in the Hollywood movie The Dark  Knight. It was owned by billionaire tycoon Li Ka-shing until the sale in November last year as part of Li’s reorganisation of his business empire.

A consortium called C.H.M.T Peaceful Development Asia Property was the initial buyer, but three months later China Energy Reserve & Chemicals Group pulled out of the consortium and sold its 55 per cent stake to Hong Kong tycoon Pollyanna Chu and the founder of Chinese developer Shimao Property, Hui Wing Mau.