Hong Kong retail demand spurs office conversions
Office space being reconfigured in some key properties to cater for customer needs and to take advantage of the higher rents
Strong demand for retail space from the services industry and higher rents have encouraged Wharf (Holdings) to convert some office floors at Harbour City in Tsim Sha Tsui to semi-retail use.
Some lower floors of Harbour City buildings, including World Finance Tower (North), Wharf T&T Centre, and World Commerce Centre, have already been converted and more will follow.
The office floors, each of about 18,000 square feet, were leased to trading, sourcing, and electronic companies, property agents said. When converted, the space will be used by retailers including spa and beauty centres.
The Bazaar, an outlet for clearance sales by local and international brands, has opened on the 5th floor of the Wharf T&T Centre.
Wharf (Holdings) was unavailable for comment yesterday.
Helen Mak Hoi-lun, senior director of retail services at Colliers International, said the conversions mainly involved older buildings.
"They have a lower floor-to-ceiling height and don't have raised floors. So the facilities they offer are less competitive in the market compared with new office buildings," she said.
Demand from service industries was strong, however, since Harbour City was a key shopping destination, Mak said. "The industry is also willing to pay a higher rent than office tenants, and so conversions help the landlord generate higher rental income."
According to agents, rents paid by office tenants in the buildings were about HK$35 per sq ft. This could rise to HK$60 per sq ft if leased for semi-retail use.
"Some tenants from the beauty industry moved into the converted space from other, younger office buildings in Harbour City. I think the landlord wants to consolidate these types of retailers into the same area at the development," an agent said.
The office-space occupancy rate at Harbour City was 99 per cent at the end of June, Wharf's interim report shows.
Another major Wharf development, Times Square in Causeway Bay, has also attracted service industry tenants. The 14th floor of Tower 1 has been leased to Parsons Music Store and the 35th and 36th floors have been occupied by a beauty centre.
There has been speculation the 16th to 19th levels will be converted to semi-retail use when existing leases expired. Each floor could provide an area of 17,000 sqft.
However, a spokesman for Times Square yesterday said Wharf had no plan to convert the space.
Office rents at Times Square are above HK$40 per sq ft. A property agent said rents could be 10 per cent higher if converted for semi-retail use.
Despite retail rents slowing in recent months, landlords could still get more income by improving retail space and tenant mix, agents said.
CBRE research showed prime retail rents rose by 2.4 per cent in the third quarter, compared with 2.7 per cent in the second quarter. Year-to-date rises slowed to 7.9 per cent at the end of September, against 22.3 per cent a year ago.