Concrete Analysis | Stock Connect scheme to boost growth of Chinese firms in Hong Kong

As the launch of Shanghai-Hong Kong Stock Connect - a scheme allowing cross-border stock trading between the two cities - approaches, it is widely believed that mainland financial firms have geared up for the connection by actively recruiting talent and leasing new office space.

The reality is that while mainland firms have been looking to expand their footprint in the city, much of their requirements for office space remain relatively small - typically 5,000 square feet or less.

According to JLL's research, mainland firms accounted for about 25 per cent of all new lettings in the second quarter of 2014, up from 15 per cent in the same period last year. This take-up translates to about 16 per cent of all new floor space taken up in the second quarter.

Nevertheless, the growth prospect of these mainland firms is tremendous. Less than one in eight foreign companies with offices in Hong Kong are from mainland China, but the number of mainland firms in the city has more than tripled over the past decade since China's accession to the WTO in 2001. The relatively low presence of mainland companies in Hong Kong also suggests that the potential demand for office space over the coming years could be immense.

In fact, business expansion by mainland firms in recent years has already become one of the major drivers of the Central office market. JLL's data indicates that the share of new lettings by mainland companies in terms of total floor area has risen from about 9 per cent to 13 per cent since 2011.

This trend is especially notable among the Grade A1 buildings such as the International Finance Centre, which are considered prestigious and usually command higher rentals. An office address in an iconic building and prime location is considered an important signature statement and a superb "branding" opportunity for the largest enterprises worldwide, including mainland state-owned enterprises. In particular, premium buildings with sea views and a directory with big brand names in the same industry are highly sought after.

Mainland companies have, however, become increasingly mature in office selection and lease negotiation over the past few years. This is evident by a cluster of mainland companies forming in Sheung Wan looking for quality and proximity to Central at a lower cost.