Rents ease as firms downsize offices in Kowloon

Colliers says office rents in Kowloon are expected to fall up to 8.8 per cent this year as companies seek to cut costs by leasing smaller spaces

PUBLISHED : Tuesday, 17 June, 2014, 3:47pm
UPDATED : Wednesday, 18 June, 2014, 2:51am

Weakness in the global economy is driving some companies to downsize their offices and seek replacement tenants for their office space in Kowloon.

"We found that there are more companies trying to get out of their leases by assigning the lease to a new tenant in Tsim Sha Tsui, Kwun Tong and Kowloon Bay in recent months," said Fiona Ngan, general manager at property consultancy Colliers International. She said the office spaces ranged from 2,000 square feet to 20,000 sq ft.

One example is Zurich Insurance, which has been seeking a new tenant since early this year to take over its lease for more than 50,000 sq ft of office space over three floors at C-bons International Centre (formerly called Millennium City 7) in Kwun Tong.

The insurer leased the office in 2011 and the fixed portion of the lease will expire in July 2017. Zurich has already moved out of the space.

Ngan said more companies, particularly in shipping, toys and sourcing, are downsizing and looking for smaller office spaces.

Tam Yue-man, president of the Toy Manufacturers Association, said many toy companies were downsizing because they moved some departments, such as quality control and merchandising, to the mainland.

"They don't have engineering teams in Hong Kong any more. They would hire a senior engineer stationed on the mainland to lead an engineering team."

Ngan said: "The business of some shipping companies is not good this year. Their shipment volumes over the last few months have been decreasing. Since they are not optimistic about the market outlook … they are looking for smaller offices in Kwun Tong and Cheung Sha Wan."

According to a report by Business Monitor International, Hong Kong's shipping industry faces a short-term risk of the deepening of the slowdown in demand from Europe, the United States and the mainland.

Thomas Lam, head of valuation and consultancy at property agency Knight Frank, said: "Many shipping companies used to be in Central or Sheung Wan. But increasing office rents have eaten up a big chunk of profit. So they relocated to Kowloon and downsized their offices to save costs and maintain a higher profit margin."

Colliers said leasing transactions in Kowloon for spaces smaller than 6,000 sq ft are the most active.

"About 60 per cent of the tenants who are looking for new offices are looking to save costs," Ngan said.

"It is easier for tenants to get renewals of leases. The asking rents of the large landlords have become more realistic."

She said office rents in Kowloon have dropped about 4 per cent so far this year and are expected to fall a total of 8.8 per cent over the whole year.

Lam said: "Since many new office buildings in Kowloon East have been sold in strata title in recent years, small investors are willing to cut the asking rents to lure tenants.

"But the overall office market in Kowloon is not bad," he said.