Soaring Hong Kong rents spur office buying rush

Seeking to hedge against rising rents and a shortage of space, banks and insurers are on a record spree of buying office buildings in Hong Kong, where occupancy costs are the second-highest in the world.

Manulife Financial, Canada's biggest insurer, and Hang Seng Bank this year bought office towers in the city, joining financial firms such as AIA Group and Agricultural Bank of China in spending more than HK$18.8 billion on commercial properties from January last year to last month, according to Cushman & Wakefield. That is the most for a 16-month period on record, the broker's data shows.

Companies are looking to secure space in the city where new office supply will fall a third short of demand by the end of the decade, according to Rhodri James, an executive director for office services at CBRE Group.

The office vacancy rate in Hong Kong fell to 3.3 per cent in the first quarter, the lowest in Asia behind Beijing, the broker says.

"This spate of purchases by financial institutions is unprecedented," said Sigrid Zialcita, the Singapore-based managing director for Asia-Pacific research at Cushman & Wakefield. "It allows them to manage their costs, especially given the high rents and the propensity for continual rent increases in this supply-constrained environment."

Manulife on April 10 said it would buy a 512,000 sq ft tower in Kowloon East from Wheelock for HK$4.5 billion, the second-highest price paid for an office building in the city. On completion in 2015, it will be used as the headquarters for the insurer's 1,200 staff and 5,500 agents.

The largest deal on record is Agricultural Bank of China's purchase last year of 50 Connaught Road in Central for HK$4.9 billion.