This is why Hong Kong’s office prices keep rising while property market slides

PUBLISHED : Friday, 01 January, 2016, 9:15am
UPDATED : Friday, 01 January, 2016, 8:59pm

Dark clouds may be looming over Hong Kong’s property market but thanks to mainland companies, there is one silver lining too – the city’s office market.

In what is predicted to be difficult year for the local real estate market as the United States has begun to raise interest rates, the office market could prove to be an exception as mainland companies seeking locations in prime office districts in the city are expected to keep pushing up prices.

“We expect rents in Central to grow 5-10 per cent in 2016. For the overall Grade-A office market, we forecast rents to climb up to 5 per cent,” said Ben Dickinson, head of markets at property consultancy JLL Hong Kong.

Office rents across all major markets in Hong Kong saw rates rise by a healthy margin in 2015, according to JLL data for the first 11 months of 2015.

A measure ofbroad market office rents was up 8.6 per cent for the 11 months while those in Central rose 12.4 per cent, surpassing HK$100 per sq ft for the first time since the euro-zone crisis in the fourth quarter of 2011, according to JLL.

The average monthly rent of Grade-A offices in Central stood at HK$101.5 per sq ft as of the end of November.

The Shanghai-Hong Kong Stock Connect pilot programme has prompted mainland financial services to make a beeline for Central as they look to boost their presence in the city. Mainland firms were among the most active in the market, accounting for about 35 per cent of all leased floor space and 40 per cent of all new leasing transactions in Central, according to JLL.

“We expect the expansion trend to continue with more and more wealth management and asset management demand from mainland Chinese companies,” said Kenny Yu, local director of markets at JLL

JLL says it believes strong policy support on the mainland – such as the expected launch of Shenzhen-Hong Kong Stock Connect – should translate into greater demand from financial services firms from across the border.

Despite demand from mainland companies, the core business district in Central will remain a multinational mix, according to Nigel Smith, managing director of Colliers International’s Hong Kong office. International law firms, for example, prefer to keep their offices in the core office district, he said.

Other companies, however, are more amenable to alternative locations as the pressure on core rents in Central persists.

“Banks and fund management companies are among those moving out of Central as mainland companies move in. They don’t necessarily need to have an office in Central for clients to recognise them. They are mainly moving to West Kowloon’s International Commerce Centre, Wan Chai, Causeway Bay and Quarry Bay,” JLL’s Yu said.

Colliers International’s Smith said he expects consultancies and advisory firms, accounting firms and insurance companies to continue to move out of Central to other districts where rents are lower.

In the sales market, Knight Frank said strong performance was recorded with the completion of several large-scale transactions. Mainland companies are expected to continue to buy buildings en bloc along with leasing offices in the core business district this year. They will be the key drivers for new take-up and office acquisition in the next three to five years, Smith said.