Concrete AnalysisOffice demand in Hong Kong is becoming increasingly diverse
Converting older, existing space into something that is now in high demand is becoming a focus of building owners
Office demand in Hong Kong is becoming increasingly diverse and embracing this diversity is something property owners are looking at in order capture demand. There has been much focus recently on the record high rentals achieved in Hong Kong, highlighting it as the most expensive office location in the world.
However, new office districts are increasingly attracting tenants out of an overflowing Central, where offices are at a premium in both rental and space. Despite the potential moves of large occupiers, forced by rentals, there is huge untapped potential in older real estate surrounding some of Hong Kong’s most iconic buildings.
There is approximately 28 million square feet of government classified Grade B stock in Hong Kong. By improving just a small percentage of this to target a widening tenant base, it is possible for these buildings to tap into demand from newer tenant types seeking more flexible space, different management requirements and different working hours.
This creates sub-markets of demand for larger corporates who might want to identify new talent as well as widening their customer base. This creates a more diverse tenancy mix, to allow for vibrant, interesting and ultimately more livable and workable districts.
Hong Kong is well known as a city for pulling down old buildings and replacing them with new towers. More recently, Hong Kong has been witness to a number of developments that have been refurbished from Grade B stock to Grade A stock. Converting older, existing space into something that is now in high demand is becoming a focus of building owners. Nexxus Building, Infinitus Plaza, and Nan Fung Tower are good examples that are much more reasonable in value when compared to other high-specification, high-end “premium” assets, but now are able to yield a strong rental return.
These older buildings often have open floor plates with well-designed and modern interiors. These buildings regularly attract large international corporates that are either looking to move specific departments outside of “trophy assets” or a wholesale move dictated by cost, but are location sensitive.
Increasing demand for these value-sensitive buildings is now a primary criteria for many international tenants. By being proactive, landlords of Grade B stock can steal a march on this new demand cycle above their peers.