Hong Kong office rent collapse triggers wave of relocation upgrades
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Companies are jumping on the opportunity to upgrade to bigger and better offices amid Hong Kong’s rare property downturn.
PHOTO: BLOOMBERG
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HONG KONG – At an industrial-styled office unit in Hong Kong, employees of events company Hybrid Group are enjoying the perks of their new workplace – three times the floor space, a wet pantry and natural sunlight.
The company moved within the Central district more than a month ago. It managed to keep one of its old units as storage space due to lower rents.
“We felt like this is the first time that we have negotiating power,” said co-founder Gary Wan. “There is definitely something interesting to leverage in current markets.”
Companies are jumping at the opportunity to upgrade to bigger and better offices amid Hong Kong’s rare property downturn. That is adding pressure on commercial landlords who own assets that are older or in non-prime locations.
With slowing demand and an impending influx of supply, Grade-A office rents are 31 per cent lower than in 2019, according to JLL data.
“Right now, we’ve a lot of nice buildings, whereas in the past, even if you wanted to get in, you can’t get in,” said Colliers’ head of landlord representation Chris Hui.
“With Hong Kong’s overall vacancy at around 15 per cent, it’s giving occupiers the opportunity to go in, look for better stuff and at more affordable rental levels.”
Top-quality buildings include environmental, social and corporate governance certifications, wellness facilities, a large floor plate with more square footage for a single storey, access to transportation, and provisions including high-tech air-conditioning systems, said experts.
A number of companies have been jumping at the opportunity. Jefferies Financial Group moved from Cheung Kong Centre to Two International Finance Centre. ByteDance relocated to One IFC, while law firm Stephenson Harwood leased One Taikoo Place in Quarry Bay, switching from United Centre in Admiralty.
Tenants in Kowloon are also moving to Hong Kong Island to be closer to the central business district. Premium spirits company Edrington Group upgraded from Exchange Tower in Kowloon Bay to a 16,700 sq ft space in Swire Properties’ Two Pacific Place.
“We are seeing a clear divergence in occupancy between top Central, overall Central and non-Central areas like Kowloon East,” said Jefferies Hong Kong analyst Sam Wong.
Within the prime business district, Hongkong Land Holdings – the biggest landlord in Central – has several buildings more than 30 years old.
For now, Hongkong Land is holding up well. It had a vacancy rate of 6.2 per cent as at June, compared with a rate of 9.4 per cent in Central.
Its oldest building, Prince’s Building, has an occupancy rate of nearly 100 per cent. The developer invests as much as US$100 million (S$134 million) annually in upgrades across its buildings in Central.
Longer term though, it could face some pressure. While the company enhanced its properties and has an advantage in that its buildings are connected by a footbridge, its towers are still ageing and becoming outdated, said Bloomberg Intelligence analyst Patrick Wong.
Locking down and overhauling any of the property would mean a loss of rental income when the market is already in a downturn. That is a balancing act for all landlords.
“If demand is coming back, it’s easier to upgrade, but the situation we are facing is that demand is not coming yet,” said Mr Henry Chin, CBRE Group’s head of research, Asia-Pacific.
“It’s a chicken-and-egg thing.” BLOOMBERG
