HK’s office property trends may soon find favour with tech companies
The tech sector has been one of the fastest growing occupier groups in US and European office markets over the past year with technology companies starting to move into some of the most highly sought after addresses in cities such as New York and London. In many instances, they are competing with banking and finance companies for these prime offices.
The changing occupier landscape in these cities has led some to ponder whether a similar pattern of leasing could emerge in Hong Kong, a city that has a thriving start-up community and was ranked by Forbes as the number one tech capital to watch after Silicon Valley and New York in 2013.
While a number of tech companies expanded their footprint in the city in 2014, the sector remains relatively small when compared to banking and finance and occupies less than 10 per cent of Grade-A office stock. One of the reasons why growth has lagged other cities is because these companies continue to largely open offices in Hong Kong for sales and marketing purposes. However, that is not to say that the market does not have credentials to develop further.
Some argue that the local tech sector lacks a strong research and development (R&D) culture to be able to flourish. However, with an established high-end tech cluster located just over the border in Shenzhen, there is little need to significantly invest heavily into R&D in Hong Kong. Coupled with the city’s world class infrastructure, Hong Kong’s high adaptation rate for technology, its highly educated and productive workforce, pro-business environment, strong government support and access to deep capital markets, provides a perfect environment for tech companies to establish operations beyond sales and marketing. And for mainland tech companies looking to expand beyond their borders, the unfettered access to the internet and popular social media platforms such as Facebook, YouTube and Instagram gives Hong Kong a unique edge over other mainland cities.
From a real estate perspective, the city has plenty to offer. As we start moving into a new supply cycle, which will considerably diversify both the number of highly accessible business appropriate districts and the real estate choices therein, Hong Kong’s reputation as a city that is supply constrained and expensive will be shattered. Throw in government policies aimed at promoting the refurbishment of older industrial buildings into offices and a myriad of opportunities for tech companies to creatively design and use office real estate will emerge.
The confluence of business opportunities and new real estate provides a unique proposition for tech companies looking to establish or expand operations in the Asia Pacific region. But perhaps one of the strongest arguments for why Hong Kong could become a regional tech hub is the city itself. With the tech sector entering a new era of growth, there is now intense competition in winning the talent war.
With the most highly sought-after professionals in the industry having the pick of jobs, where they live and work becomes an important factor. Hong Kong on balance already is a location of choice for a high proportion of people in the Asia Pacific region who get to choose where they wish to live, and therefore this makes a strong argument to those in the tech sector seeking to provide the best all-round workplace and lifestyle environment to the top talent of the future. Against this backdrop, Hong Kong has all the ingredients to be the next tech capital of the world, and certainly within Asia Pacific.
Gavin Morgan is Chief Operating Officer and Head of Leasing at JLL Hong Kong.