Multinationals set to leave Hong Kong’s prime office district Central in search of cheaper rents
Real estate companies expect further increases in rents this year
More multinational companies will leave Hong Kong’s Central district, where rents have become too expensive, with some even considering leaving the city altogether.
Average office rents continue to rise in greater Central, which includes the districts of Central, Admiralty and Sheung Wan. In the first quarter, rents jumped by 8.7 per cent from the same period a year ago to HK$134.3 (US$17.1) per square foot a month, according latest figures provided by US commercial real estate services company Cushman and Wakefield. Moreover, rents in core Central, which comprises 12 prime buildings such as the International Financial Centre and Cheung Kong Center, now stand at HK$161 per square foot.
And while Cushman expects office rents in greater Central to rise by 7 per cent to 9 per cent for the whole year, the largest increase among all districts, global real estate services company Colliers International said it expected rents in Central to increase by another 5 per cent to 8 per cent in the next nine months.
In fact, Colliers International said some offices in buildings in core Central might even fetch rents as high as HK$200 per square foot a month and set a record in two years’ time.
“Rents have increased more than we expected,” said Fiona Ngan, head of office services at Colliers International. Data compiled by the company shows that office rents in Central have already risen by between 3 per cent and 5 per cent in the first three months this year.
“We are seeing more legal firms and overseas financial companies moving – whole or part of their teams – away from Central, and more Chinese companies coming to the area. The move by Goldman Sachs will become a market trend,” said Ngan.
Global investment bank Goldman Sachs will move its back office staff out of The Center, the world’s most expensive office tower, which sold for HK$40.2 billion in November, in Central to Lee Garden Three in the city’s Causeway Bay district, when its lease expires in December. It will retain its office in the Cheung Kong Center in Central.
The top floor of 9 Queen's Road Central, measuring 8,570 sq ft, reportedly sold for HK$510 million, or HK$60,000 per square foot, on Wednesday, setting a new benchmark price for office buildings in Hong Kong.
“The soaring prices might drive companies to allocate some of their footprint to cost-effective locations such as southern China or Singapore,” said Ngan. “Hong Kong, however, is still perceived as a strategic and competitive location for businesses.”
John Siu, the managing director of Cushman and Wakefield, said: “We’ve seen some companies moving out. However, we do not see that would become a trend as the city holds the advantage of an open and free market.”
To ease the cost of operating in Hong Kong, some international companies have to found other affordable office space in the city.
In December, multinational law firm Freshfields Bruckhaus Deringer moved from Two Exchange Square in Central to One Island East in Quarry Bay, on the opposite end of Hong Kong Island. The current rent asked in Hong Kong East, where Quarry Bay is located, is HK$50.4 per square foot a month, less than a third of the rents in prime Central, which now stands at HK$161.
JPMorgan plans to relocate its Hong Kong team to a building by the riverside in Kwun Tong by next year, while law firms Baker McKenzie and Simmons & Simmons have announced they will move to One Taikoo Place in Quarry Bay by the third quarter this year.
“The presence of mainland companies in Central will continue to increase, as they have a strong interest in setting up offices in the district as a way of establishing their name,” said Siu.
By the end of 2016, mainland companies held – bought and rented – about 19 per cent of all office areas in Central, up from 13 per cent five years ago, according to Cushman. The increase is about 1 million sq ft, or almost the total gross floor area of Cheung Kong Center.
A survey by property consultant JLL last year found that mainland Chinese companies had taken up 48 per cent of the new office space offered in Hong Kong in the first nine months of 2017.