Days of record high Central office rents have gone
The days of HK$200 per square foot office rents in Central - a record set in 2007 - are unlikely to return any time soon as new supply jumps in the next 10 years, according to property consultant JLL.
It estimates new supply of Grade A offices in Hong Kong will reach at least 20 million square feet between 2015 and 2024. The supply of Grade A offices between 2000 and 2014 averaged 1.6 million sq ft a year.
"We are coming into a time of significant new supply, it is going to further diversify the Hong Kong market," said Gavin Morgan, the chief operating officer and head of leasing at JLL.
With non-core locations gaining wider acceptance among occupiers, helped by improved infrastructure, rents would adjust accordingly.
The gap between Central and non-Central districts such as Hong Kong East would narrow further, said Denis Ma, the head of research at JLL, with rents in Central to remain steady.
"The days of HK$200 per square foot monthly rentals in Central are unlikely to be coming back any time soon," he said.
Morgan said that was good news for tenants, adding that it was also positive for Hong Kong as it would significantly enlarge the city's office market.
"I have been concerned about Hong Kong as the most expensive office city either in Asia or in the world," he said.
"But when the Central-Wan Chai Bypass is completed by the end of 2017, there will be a very short car distance between Central, Hong Kong East and Kowloon East."
The dramatic change in office supply will have wider implications for occupiers and investors.
For occupiers, increasing supply offers myriad opportunities to secure cost-effective offices to accommodate expansion and consolidation requirements. For investors, the growth of the market would provide the opportunity to acquire quality assets in both established and emerging office locations, JLL said.
"[Occupiers] do not need to be forced to look beyond Hong Kong," Morgan said.