1. home and garden
2. bed and bath
3. bedroom

OFFICE
MATTERS
HONG KONG OFFICE SERVICES | Q4 2012
IN THIS EDITION
55+ HOT LISTINGS
Find out why
Hong Kong needs
more office space
HONG KONG:
A Destination for
Data CentRES
www.cbre.com.hk | officeservices@cbre.com.hk | +852 2820 8120
Licence No. C-004065
MESSAGE FROM
RHODRI JAMES
On behalf of CBRE Office Services, I am delighted to introduce this latest edition of our Office Matters
magazine. A comprehensive round-up of Hong Kong’s commercial real estate market happenings, offering
fresh perspectives and insights from a range of CBRE executives.
As office requirements and demands are constantly changing, we have integrated our 55+ Hot Listings into
this edition. Our award-winning team of professionals at CBRE Office Services is here to help you find the
best and most suitable office space for your company.
Following that we tackle the big question; why does Hong Kong top the ‘most expensive’ lists when compared
to other markets around the globe? Our Head of Research, Edward Farrelly, explains the reasons behind
the high real estate costs in the city. At the same time, our Kowloon office expert, John Davies, reviews Hong
Kong’s transformation over the past 12 years, and offers his views on Kowloon’s CBD2 development project.
We also hear from Amod Jayawant from our Industrial & Logistics Services team, who looks at Hong Kong’s
opportunity to expand its data centres, and offers comments and comparisons with the rival Singapore
market.
I hope you enjoy reading Office Matters and please feel free to contact any of my colleagues or myself for
further information on these topics, as well as additional market updates.
Rhodri James
Executive Director
Office Services, Hong Kong
CBRE HK Limited
T: +852 2820 2833
rhodri.james@cbre.com.hk
2
OFFICE MATTERS HONG KONG
CONTENTS
03MARKETVIEW
04Hong Kong Island Hot Listings
11
Kowloon & New Territories Hot Listings
17Space measurement guide
18Hong Kong Occupancy Costs - There is Method in the Madness | Edward Farrelly
20A Destination, not a Megatower is Key to Hong Kong’s CBD2 Success | John Davies
22Data Centres Hong Kong vs Singapore | Amod Jayawant
Hong Kong Office
Marketview
Demand
Despite a pick-up in activity in recent months, net demand for office space remained relatively subdued. Companies continued
to focus on relocating to more cost effective space which does not always translate into a net increase in occupancy levels. In
Central, the banking sector in particular is currently driven by cost containment / reduction. Much of the recent activity in Central
has come from outside the banking sector and for floor areas of less than 10,000 sq ft. However, decentralised areas, in
particular Kowloon, continued to enjoy steady demand from cost conscious tenants, while retail and trading related companies
are still looking to expand.
Supply
Vacant space has contracted slightly in Central in recent months on the back of the up-tick in letting activity, albeit weak.
However, the rate of contraction has been painfully slow and the Central vacancy rate remains high at 5.2%. Outside of Central,
steady demand continued to drive down vacancy rates to historic lows. This was mainly driven by average Kowloon vacancy
reaching its lowest recorded level for the past five quarters. In a market where tenants are becoming more cost conscious, this
suggests a disparity between the type of space available in the market (expensive space in Central) and the type of space that is
in demand (cost effective space outside of Central).
Rent
In Central, given high vacancy and the lack of large transactions, average rents continued to decline even as rents rose across
Hong Kong. Central rents have fallen by -8.3% year-to-date and dropped -16.3% since the peak of the market in July last year.
The lack of space in decentralised districts continued to support rents as cost conscious tenants and retail related firms vie for
limited available space. Looking ahead, weaknesses still persist in the Central market as vacancy remains high. While outside
of Central, low vacancy is expected to support rents, however, the lack of space will likely inhibit big transactions.
OFFICE MATTERS HONG KONG
3
Hong Kong
Island
HOT LISTINGS
Sheung Wan
CENTRAL
Admiralty
Sheung Wan
WAN Chai
Central
CAUSEWAY BAY
Admiralty
NORTH POINT
Wanchai
QUARRY BAY
Causeway Bay
TAI KOO
North Point
Quarry Bay / Taikoo
Facility Legend
Within 7 mins walk to MTR station
Within 10 mins walk to cross harbour ferry terminal
Connected to shopping arcade
Taxi stand near the building
Bus terminal located within the building area
Carpark available within the building
Sea view
Mountain view
Park view
4
OFFICE MATTERS HONG KONG
SHEUNG WAN
COSCO TOWER
183 Queen’s Road Central
Size: 10,000 to 20,533 sq ft (G)
Feature: Bareshell or fully fitted, rare opportunity
for whole floor with easy MTR access
Ivy Tai
S-228383
T: +852 2820 8158
E: ivy.tai@cbre.com.hk
181 Queen’s Road Central
181 Queen’s Road Central
Size: 7,227 sq ft (G)
Feature: The only fully fitted space available in
the building
Benny Cheung
S-228378
Clement Wong
S-270133
T: +852 2820 2927
E: benny.cheung@cbre.com.hk
Li Po Chun Chambers
189 Des Vouex Road Central
Size: 9,551 sq ft (G)
Feature: Whole floor fitted office with meeting rooms and wet pantry
T: +852 2820 8156
E: clement.wong@cbre.com.hk
The Center
99 Queen’s Road Central
Size: 1,919 sq ft (G)
Feature: Very competitive rental package
Queenie Ng
S-136432
ABC Tower
50 Connaught Road Central
Size: 4,588 sq ft (L)
Feature: Newly fully fitted office ideal for the finance
or legal sector with private offices
Ian Stewart
E-265618
T: +852 2820 8109
E: ian.stewart@cbre.com.hk
Matthew Thompson
Central
T: +852 2820 2821
E: queenie.ng@cbre.com.hk
S-282878
T: +852 2820 8143
E: matthew.thompson@cbre.com.hk
One IFC
8 Finance Street
Size: 19,854 sq ft (L)
Feature: Largest fitted space available in One IFC (potential subdivision)
Charles Kelly
S-365379
T: +852 2820 2963
E: charles.kelly@cbre.com.hk
OFFICE MATTERS HONG KONG
5
CENTRAL
TWO IFC
8 Finance Street
Size: 2,648 to 22,982 sq ft (L)
Feature: Trading floors available
Judy Wai
E-226598
T: +852 2820 5186
E: judy.wai@cbre.com.hk
Size: 4,363 sq ft (L)
Feature: Fully fitted, subdivisible trading floor
Coleman Cheung
S-341409
T: +852 2820 8139
E: coleman.cheung@cbre.com.hk
Unique opportunity
in Central
Size: 53,600 sq ft (N)
Feature: Contiguous floor opportunity in the heart of Central
Jess Chou
E-037832
T: +852 2820 2823
E: jess.chou@cbre.com.hk
York House
15 Queen’s Road Central
Size: 2,855 sq ft (N)
Feature: Fully fitted and furnished with IT cabling
Size: 4,628 sq ft (N)
Feature: Fully fitted with large open plan area
Oliver Rigg
E-261738
T: +852 2820 8193
E: oliver.rigg@cbre.com.hk
100 Queen’s Road Central
100 Queen’s Road Central
Size: 6,064 to 6,739 sq ft (G)
Feature: Situated at the junction of mid-levels
escalator and Central footbridge
network
Clement Wong
S-270133
T: +852 2820 8156
E: clement.wong@cbre.com.hk
6
OFFICE MATTERS HONG KONG
CENTRAL
Fitted office
prime central
Size: 7,937 sq ft (L)
Feature: Turn-key solution, perfect for any
professional services firm
Charles Kelly
S-365379
T: +852 2820 2963
E: charles.kelly@cbre.com.hk
Hing Wai Building
36 Queen’s Road Central
Size: 1,928 to 2,207 sq ft (G)
Feature: Bareshell condition with arched French windows offering natural light
Ian Stewart
E-265618
T: +852 2820 8109
E: ian.stewart@cbre.com.hk
Entertainment Building
30 Queen’s Road Central
Size: 1,586 to 5,820 sq ft (L)
Feature: Fitted or bareshell condition, with sea
views on some units
Seth Chin
S-392434
T: +852 2820 1520
E: seth.chin@cbre.com.hk
9 Queen’s Road Central
9 Queen’s Road Central
Size: 2,500 to 13,721 sq ft (G)
Feature: Excellent address for legal or banking sectors
with seaview
Ivy Tai
S-228383
T: +852 2820 8158
E: ivy.tai@cbre.com.hk
Benny Cheung
S-228378
T: +852 2820 2927
E: benny.cheung@cbre.com.hk
Ruttonjee Centre
11 Duddell Street
Size: 1,064 to 3,059 sq ft (G)
Feature: Positioned in the heart of Central, ideal for professional firms
Ian Stewart
E-265618
T: +852 2820 8109
E: ian.stewart@cbre.com.hk
Henley Building
5 Queen’s Road Central
Size: 4,418 to 6,023 sq ft (L)
Feature: New / modern fit-out or bareshell, multiple
units available
Seth Chin
S-392434
T: +852 2820 1520
E: seth.chin@cbre.com.hk
OFFICE MATTERS HONG KONG
7
CENTRAL
Hutchison House
10 Harcourt Road
Size: 20,292 sq ft (G)
Feature: Flexible lease available
Benny Cheung
S-228378
T: +852 2820 2927
E: benny.cheung@cbre.com.hk
Cheung Kong Center
2 Queen’s Road Central
Size: From 2,138 to 22,006 sq ft (L)
Feature: Predominant location in Central
Seth Chin
S-392434
T: +852 2820 1520
E: seth.chin@cbre.com.hk
Bank of America Tower
12 Harcourt Road
Size: 6,400 sq ft (G)
Feature: Fully furnished with seaview and two
car park spaces included
Benny Cheung
S-228378
T: +852 2820 2927
E: benny.cheung@cbre.com.hk
Size: 1,428 sq ft (G)
Feature: Ready to move in office space
Coleman Cheung
S-341409
T: +852 2820 8139
E: coleman.cheung@cbre.com.hk
Clement Wong
S-270133
T: +852 2820 8156
E: clement.wong@cbre.com.hk
KINWICK CENTRE
32 Hollywood Road
Size: 2,639 sq ft (G)
Feature: Newly fitted office space next to
mid-levels escalator link
Luigi La Tona
E-306613
Luigi La Tona
E-306613
Admiralty
T: +852 2820 8147
E: luigi.latona@cbre.com.hk
United Centre
95 Queensway
Size: 5,623 sq ft (G)
Feature: Furnished and open plan fit out with
storage rooms, server room, vault
room and conference room
T: +852 2820 8147
E: luigi.latona@cbre.com.hk
8
OFFICE MATTERS HONG KONG
WANCHAI
Gloucester Road
Size: From 10,000 sq ft (G)
Feature: 2 contiguous whole floors available on a sub-lease, fully fitted
James McLean
E-285862
T: +852 2820 8110
E: james.e.mclean@cbre.com.hk
88 Gloucester Road
88 Gloucester Road
Size: 2,890 sq ft (G)
Feature: Fitted office ideal for professional firms
requiring prominent and convenient
accommodation
Ian Stewart
E-265618
T: +852 2820 8109
E: ian.stewart@cbre.com.hk
Fortis Tower
77-79 Gloucester Road
Size: 6,350 sq ft (G)
Feature: Whole floor in fitted or bareshell condition
Edmund Leung
S-392621
T: +852 2820 8179
E: edmund.leung@cbre.com.hk
China ResourceS Building
26 Harbour Road
Size: 907 to 20,788 sq ft (L)
Feature: Column free, green building
Judy Wai
E-226598
T: +852 2820 5186
E: judy.wai@cbre.com.hk
Jubliee Centre
18 Fenwick Street
Size: 6,930 sq ft (G)
Feature: Cost-effective rental package
Queenie Ng
S-136432
Sino Plaza
255-257 Gloucester Road
Size: 6,589 sq ft (G)
Feature: Available from mid-November 2012
Clement Wong
S-270133
T: +852 2820 8156
E: clement.wong@cbre.com.hk
OFFICE MATTERS HONG KONG
Causeway Bay
T: +852 2820 2821
E: queenie.ng@cbre.com.hk
9
Causeway Bay
Fully Fitted Office
In Causeway Bay
Size: 2,897 sq ft (L)
Feature: Whole floor opportunity with high
efficiency
Tess Yu
E-242838
T: +852 2820 8153
E: tess.yu@cbre.com.hk
Edmund Leung
S-392621
North Point
T: +852 2820 8179
E: edmund.leung@cbre.com.hk
Prime Office
in North Point
Size: 10,045 sq ft (G)
Feature: Fully fitted, column-free office with seaview
Serena Guo
S-397221
T: +852 2820 8154
E: serena.guo@cbre.com.hk
Judy Wai
E-226598
T: +852 2820 8186
E: judy.wai@cbre.com.hk
Electric Road
Size: 5,266 sq ft (G)
Feature: Fully fitted space in excellent condition and partial sea views
Coleman Cheung
S-341409
Quarry Bay / Taikoo
T: +852 2820 8139
E: coleman.cheung@cbre.com.hk
Prime Grade A Office
in Quarry Bay
Size: 10,630 sq ft (L)
Feature: Flexible sub-let opportunity
Judy Wai
E-226598
T: +852 2820 8186
E: judy.wai@cbre.com.hk
James McLean
E-285862
T: +852 2820 8110
E: james.e.mclean@cbre.com.hk
Professionally Managed
Office in Quarry Bay
Size: 10,916 sq ft (L)
Feature: Fully fitted open plan office
Judy Wai
E-226598
Judy Wai
E-226598
T: +852 2820 8186
E: judy.wai@cbre.com.hk
Office space in Taikoo
Size: 1,800-3,500 sq ft (L)
Feature: Fully fitted open plan office
T: +852 2820 8186
E: judy.wai@cbre.com.hk
James McLean
E-285862
T: +852 2820 8110
E: james.e.mclean@cbre.com.hk
10
OFFICE MATTERS HONG KONG
Kowloon & New
Territories
HOT LISTINGS
SHATIN
KOWLOON TONG
SAN PO KONG
KOWLOON BAY
KWUN TONG
HUNGHOM
JORDAN
TSIMSHATSUI
KWAI CHUNG
Facility Legend
Within 7 mins walk to MTR station
Within 10 mins walk to cross harbourferry terminal
Connected to shopping arcade
Taxi stand near the building
Bus terminal located within the building area
Carpark available within the building
Sea view
Mountain view
Park view
OFFICE MATTERS HONG KONG
11
SHATIN
Hong Kong Science Park - Phase 3
*Subject to availability
FeatureS
•Phase 3 will provide 1 million sq ft
R&D office & lab spaces comprised of 6 buildings
•Available late 2013
•Plug-and-play / build-to-suit options available
•Headquarters opportunity
•Primarily targeting hi-tech companies especially
green-tech and bio-tech related
Cynthia Ng
S-349099
T: +852 2820 1534
E: cynthia.ng@cbre.com.hk
12
Sam Li
E-232513
T: +852 2820 6517
E: sam.li@cbre.com.hk
OFFICE MATTERS HONG KONG
•Phase 1 & 2 (2.2million sq ft) operating with
over 380 MNC & SME technology companies
including Philips, SAE, Johnson Electric, NVIDIA,
National Semiconductor
•Advanced infrastructure and shared lab facilities
providing a conducive environment that supports
innovation
Yvonne Khoo
E-323863
Mark Palmer
S-280455
T: +852 2820 5146
E: yvonne.khoo@cbre.com.hk
AIA Financial Centre
712 Prince Edward Road East
Size: 35,547 sq ft (G)
Feature: Cost effective and large floor plate
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
Skyline Tower
39 Wang Kwong Road
Size: 14,441 sq ft (G)
Feature: Portfolio landlord
Nick Russell-Smith
S-295733
T: +852 2820 6508
E: nick.russellsmith@cbre.com.hk
KOWLOON TONG
Size: 7,233 sq ft (G)
Feature: Direct transportation to all parts of Hong
Kong and to Mainland China
San Po Kong
80 Tat Chee Ave
KOWLOON BAY
Festival Walk
Manhattan Place
23 Wang Tai Road
Size: 20,860 sq ft (G)
Feature: Located within the developing office hub
Chris Wong
E-223138
T: +852 2820 6514
E: chris.wong@cbre.com.hk
Yvonne Khoo
E-323863
Mark Palmer
S-280455
T: +852 2820 5146
E: yvonne.khoo@cbre.com.hk
Exchange Tower
33 Wang Chiu Road
Size:18,108 sq ft (G)
Feature: Large floorplate with open-air balcony on
each floor
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
Enterprise square 5, tower 1
38 Wang Chiu Road
Size: 4,197 sq ft (G)
Feature: Raised floor and full ceiling systems with
panaromic seaview
Chris Wong
E-223138
T: +852 2820 6514
E: chris.wong@cbre.com.hk
OFFICE MATTERS HONG KONG
13
KWUN TONG
Millennium city 2
378 Kwun Tong Road
Size: Approx. 11,000 sq ft (G) per floor x 2 floors
Feature: Whole floor opportunities
Sam Li
E-232513
T: +852 2820 6517
E: sam.li@cbre.com.hk
Chris Wong
E-223138
Eddie Chan
E-227018
Chris Wong
E-223138
T: +852 2820 6514
E: chris.wong@cbre.com.hk
Millennium City 5
418 Kwun Tong Road
Size: 10,231 to 25,712 sq ft (G)
Feature: High efficiency Grade A office
T: +852 2820 6510
E: eddie.chan@cbre.com.hk
T: +852 2820 6514
E: chris.wong@cbre.com.hk
Manulife financial Centre
223 Wai Yip Street
Size: 46,000 sq ft (G)
Feature: Largest whole floor space in Kowloon
East
Mark Palmer
S-280455
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
Kwun Tong Harbour Plaza
182 Wai Yip Street
Size: Approx. 25,000 sq ft (L)
Feature: Strategic location and cost effective
option in Kowloon
Keith Chui
S-133859
TsimShatsui EAST
T: +852 2820 6511
E: keith.chui@cbre.com.hk
EAST OCEAN CENTRE
98 Granville Road
Size: 11,140 sq ft (G)
Feature: Unique whole floor opportunity in
Tsimshatsui East
Rocky Chan
E-256424
T: +852 2820 6519
E: rocky.chan@cbre.com.hk
Tsimshatsui Centre
West Wing
66 Mody Road
Size:11,491 sq ft (G)
Feature: Rare opportunity in Tsimshatsui East
Mark Palmer
S-280455
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
14
OFFICE MATTERS HONG KONG
1 Austin Road West
Size: 3,175 sq ft (G)
Feature: Iconic building in Hong Kong
Yvonne Khoo
E-323863
T: +852 2820 5146
E: yvonne.khoo@cbre.com.hk
Sam Li
Tsimshatsui
icc
E-232513
T: +852 2820 6517
E: sam.li@cbre.com.hk
One Peking
1 Peking Road
Size: 5,440 sq ft (G)
Feature: High building specification
Nick Russell-Smith
S-295733
T: +852 2820 6508
E: nick.russellsmith@cbre.com.hk
The Gateway, Sunlife Tower
25 Canton Road
Size: 23,399 sq ft (G)
Feature: Whole floor opportunity at highly
competitive rent
Mark Palmer
S-280455
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
The Gateway, Tower 6
9 Canton Road
Size: 25,407 sq ft (G)
Feature: The only whole floor available in
Tower 6
Nick Russell-Smith
S-295733
T: +852 2820 6508
E: nick.russellsmith@cbre.com.hk
Eddie Chan
E-227018
T: +852 2820 6510
E: eddie.chan@cbre.com.hk
Harbour City
3-27 Harbour Road
Size: Approx. 18,000 sq ft (G)
Feature: Part of the largest business complex in
Kowloon
Keith Chui
S-133859
T: +852 2820 6511
E: keith.chui@cbre.com.hk
Chris Wong
E-223138
T: +852 2820 6514
E: chris.wong@cbre.com.hk
Miramar Tower
134 Nathan Road
Size: 17,472 sq ft (G)
Feature: Flexible large space with Kowloon Park
view
Mark Palmer
S-280455
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
S-419575
T: +852 2820 2914
E: troy.wu@cbre.com.hk
OFFICE MATTERS HONG KONG
15
KWAI CHUNG
Kowloon Commerce Centre Tower 2
51 Kwai Cheong Road
SOLE AGENT
*Subject to availability
Size: 208,070 sq ft (G)
FeatureS
•Prime Grade A office development built by an experienced developer
•Professional property management - Kai Shing
•New emerging office hub
•Directly connected to air conditioned walkway to Kwai Hing MTR station
•Two stops from Lai King, a major MTR interchange
•Approx. 18 mins to Central & 20 mins to airport
•Pre certified LEED GOLD building
BUILDING FACTS
Certificate of completion
June 1st, 2013
Available office floors
8 (18-26/F)
Total office floors
23
Typical floor plateCirca 24,500 sq ft (G)
Ceiling height
2.85-3.05 metres
Provisions
150mm raised floor, metallic ceiling
Air conditioning Central A/C system
Ian Stewart
E-265618
T: +852 2820 8109
E: ian.stewart@cbre.com.hk
16
Rocky Chan
E-256424
T: +852 2820 6519
E: rocky.chan@cbre.com.hk
OFFICE MATTERS HONG KONG
88 Container Port Road
Size: 19,550-23,642 sq ft (G)
Feature: Rare Investment opportunity in Kowloon
West suitable for investors and occupiers
FOR SALE
Sam Li
E-232513
T: +852 2820 6517
E: sam.li@cbre.com.hk
Chris Wong
Kwai CHUNG
Evergain plaza
E-223138
T: +852 2820 6514
E: chris.wong@cbre.com.hk
Manhattan Centre
16 Kwai Cheong Road
Size: 15,815 sq ft (G) per floor
Feature: 3 whole floors within one lift zone
John Davies
E-198014
T: +852 2820 2893
E: john.davies@cbre.com.hk
Yvonne Khoo
E-323863
Mark Palmer
S-280455
Manulife Provident
fund Place
345 Nathan Road
Size:10,675 sq ft (G)
Feature: High efficiency and close proximity to
major transport amenities
T: +852 2820 6512
E: mark.palmer@cbre.com.hk
Troy Wu
Jordan
T: +852 2820 5146
E: yvonne.khoo@cbre.com.hk
S-419575
The Metropolis
10 Metropolis Drive
Size: 17,755 sq ft (G)
Feature: Whole floor opportunity available in
May 2013
Eddie Chan
E-227018
T: +852 2820 6510
E: eddie.chan@cbre.com.hk
Sam Li
E-232513
HUNG HOM
T: +852 2820 2914
E: troy.wu@cbre.com.hk
T: +852 2820 6517
E: sam.li@cbre.com.hk
Space Measurement Guide
In Hong Kong, floor areas are usually quoted based on either gross area, lettable area or net area. There are 3 bases of measurement
in which rents, service charges and various charges are quoted. Tenants should understand the difference between them in order
to compare the true cost on actual usable space of the premises.
GROSS AREA (G)
The total area measured to outside of external walls, including
elevator lobbies and wells, restrooms, staircases and all
mechanical areas. All elements of the common areas are
apportioned on a pro-rata basis if the floor is subdivided.
Depending on the size of the floorplate, the efficiency of gross
area is in the range of 60 - 80% of the quoted area.
NET AREA (N)
The actual usable “carpet” area of the premises and in some
cases also include elevator lobbies. Efficiency of net area is
typically in the range of 95 - 100% of the quoted area.
LETTABLE AREA (L)
The net area plus structural columns and a percentage of
common areas such as elevator lobbies and restrooms.
Common areas are apportioned on a pro-rata basis if the
floor is subdivided. Efficiency of lettable area depends on the
size of the floor plate and usually ranges from 70 - 90% of the
quoted area.
OFFICE MATTERS HONG KONG
17
Hong Kong Occupancy Costs
There is Method in the
Madness
by EDWARD FARRELLY, Head of Research, Hong Kong, Macau & Taiwan
CBRE recently published the 2012 edition of Global Office Occupancy Costs and
the results make for interesting reading for those of us active in Asia, particularly
in Hong Kong. Far from being the poor relation of global markets, Asia now sits
at the forefront of growth and 19 of the 50 most expensive office markets are
located here.
Office occupancy costs increased by an average
of 3.6% globally, led by Asia Pacific on 7.8%,
but fell by 17.2% year-on-year. Interestingly, the
three fastest growing markets were all located
in mainland China: Beijing – Jianguomen CBD
(49.4% y-o-y), Beijing – Finance Street (42.0%)
and Guangzhou (40.4%). At the other end of
the scale was Hong Kong, which registered the
steepest drop in occupancy costs globally over
the 12 month period through to end Q1 2012.
Hong Kong Central...11% ahead of
London West End...and 33% ahead of
Tokyo.
Despite occupancy costs falling faster in Hong
Kong Central than anywhere else in the world,
it still remains the most expensive office market,
11% ahead of London West End in second place
and 33% ahead of Tokyo in third. Furthermore,
prime office space in Kowloon West also appears
in the top ten as the seventh most expensive office
market in the world.
So why is Hong Kong so expensive relative to
other markets around the globe? Well, until fairly
recently this question would have been redundant
as Hong Kong was in fact a more cost effective
option. It wasn’t until 2005 that CBD rents in
Hong Kong exceeded those in Paris Centre West
and it took until 2010 before London West End
ceded to Hong Kong Central the dubious title of
having the most expensive rents in the world. The
position of Hong Kong is therefore in part due to
weaknesses in competing international markets.
18
OFFICE MATTERS HONG KONG
On the other side of the coin is the inherent
strength of Hong Kong, which should be
considered in the context of the allocation of
scarce resources.
A 2011 study carried out by CBRE on office
occupiers’ global footprints showed Hong Kong
to be the preferred location for international
occupiers. More occupiers had a presence here
than in any other location around the world.
Part of this can undoubtedly be attributed to the
rapid growth experienced in the city following the
1997 handover, but more importantly, after the
global financial crisis of 2008. From end 2009
and through 2010 Hong Kong witnessed a rapid
rise in net absorption. A strong stimulus package
from mainland China contributed to renewed
growth in the region and Hong Kong was perfectly
positioned to capture this. Companies which had
downsized now looked to claw back space and
net absorption climbed from the depths of subzero figures in mid 2009 to quarterly numbers in
excess of 800,000 sq ft by mid 2010.
Average vacancy rates responded and having
exceeded 6.5% in Q3 2009 they were back
down below 4.0% just 12 months later. However,
perhaps the key fact here was not the steep decline
in vacancy but that at the nadir of the market
average vacancy rates were close to what could
be considered equilibrium for an international
market. Quite simply, not only could supply not
respond in time to accommodate a surge in
demand but the market had been restricted by a
lack of supply leading up to GFC.
The origins of this date back to (i) the years
immediately after the 1997 handover when
uncertainty dominated the market and few
projects were initiated, and (ii) the years after
SARS when fear dominated the market. Hong
Kong had been navigating periods of boom and
bust as supply tended to hit the market at the least
opportune times which discouraged developers
from initiating further projects in the following
years. This situation was exacerbated due to the
fact that (i) office projects in Hong Kong tend to
be large in size and supply and therefore quite
“chunky”, and (ii) short term sentiment plays a
key role in long term decision making.
The two largest office towers in Hong Kong, ICC
and IFC, were completed in 2008 and 2004
respectively, coinciding with the two biggest
crisises to hit the market. Both periods were
followed by a severe downturn in office supply.
This uneven pattern generates great volatility
in the market and rental levels can rarely be
described as calm or stable. For example, in
Hong Kong, annual rental growth measured
on a quarterly basis, has fallen within a +10%
to -10% band on only 17% of occasions. This
compares unfavourably with the corresponding
figures of 32% and 44% for London and New
York respectively.
such, we are already seeing companies position
themselves now in order to take advantage of
greater supply during this period. This involves
satisfying current occupational requirements,
possibly even by splitting operations, but with a
lease structure that permits flexibility in 2015 and
beyond.
In many ways, Hong Kong is different to other
markets. Large floorplate buildings are scarce
but tall buildings abound. It is more volatile than
many and moves quicker than most. Naturally,
the market responds by allocating its scarce
resource, office space, to the higher bidder.
However, the key to markets is often locating the
scarce resource. Hong Kong, in that regard, is no
exception.
For more information on this article, please contact
Edward Farrelly at edward.farrelly@cbre.com.hk
or on +852 2820 2886.
So, yes, Hong Kong is the most expensive market
in the world due to (i) its own supply / demand
imbalances, and (ii) weaknesses in other global
markets. However, Hong Kong does have more
cost effective options for occupiers. For example,
rents in Kowloon East are 75% cheaper than
prime rents in Central and this area is less than
30 minutes away. Not surprisingly, occupational
demand in the area has been strong over the
last 12 months, often from companies relocating
from more centralised locations, and vacancy has
been driven down to just over 4.0%. Moreover,
locating contiguous space can be an arduous
process. In fact, across the whole Hong Kong
market there are only 4 buildings with 25,000
sq ft currently available at a rent of less than 50
HKD / sq ft / month.
Unfortunately, significant space is unlikely to
appear on the market until 2015 / 2016. As
The simple conclusion is that Hong
Kong needs more office space.
OFFICE MATTERS HONG KONG
19
A Destination, not a
Megatower, is Key To
Hong Kong’s CBD2 success
by JOHN DAVIES, Executive Director, Office Services, Kowloon
Most of us will be aware of a major US bank which currently occupies
approximately 300,000 sq ft in Central, but how many of us recall its humble
beginnings in Hong Kong when it opened a 5,000 sq ft office in Central back
in the 1980s?
Yes, Hong Kong has come a long way and
indeed, a recent study carried out by CBRE on
office occupier footprints around the world shows
Hong Kong to be the number one preference for
global corporates.
During my 12 years in Hong Kong the
transformation of the city has been dramatic, not
only in terms of size, but configuration. To begin
with, the reconfigured Hong Kong East district
became the area of choice for major corporate
occupiers who did not have a requirement to
locate in core Central on Hong Kong Island.
Since 1998, due mainly to the completion of
Millennium City 1 Kwun Tong, Kowloon Bay has
emerged as a vibrant new commercial district in
its own right, supported by substantial retail and
residential services.
New business hubs are vital for the majority of
business sectors to grow in Hong Kong. During
my time in Hong Kong the growth has come
from predominantly two main business sectors,
insurance and retail sourcing.
Most of us would not be aware that in 2003
a major US apparel company occupied
approximately 11,000 sq ft In Cheung Sha Wan.
Today it occupies approximately 150,000 sq ft in
two separate Kowloon districts.
At the same time, Kowloon East has become the
new hub of choice for insurance companies that
still have expansion requirements in Hong Kong.
If it was not for the continual development of the
district a major insurance might not have been
able to expand from its 300,000 sq ft of space
in 2006 to now occupy more than 700,000 sq ft.
20
OFFICE MATTERS HONG KONG
...CBD2 will complement Central
by providing a viable location for
back office space, as well as main
offices for those sectors that do not
show a preference for Central - such
as insurance, retail and product
sourcing, to name but three.
Clearly the evolution of new cost effective office
hubs is a vital component in job retention and
creation in Hong Kong.
The growth within a diverse range of sectors has
been the catalyst for the renewed impetus and
focus on Kowloon East, which comprises the
Kwun Tong, Kowloon Bay and former Kai Tak
Airport site, highlighted in the 2011-2012 Policy
address. Now known collectively as “CBD2”,
this is the opportunity that Hong Kong needs
to master plan a scheme and create a new
destination for the future benefit of Hong Kong
and its people. I applaud the efforts made by
the Hong Kong Government to listen to the views
of all commercial and private stakeholders to
ensure that CBD2 - which covers 488 hectares’
of land - is best used to serve the needs of the
entire Hong Kong community.
There is currently 9 million sq ft of grade A office
space in the area, considerably less than the
13.5 million sq ft that is in Central. However, by
2021 Kowloon East could be double the size of
Central, which is one of the reasons why some
market commentators have voiced concerns
about competition between the two areas.
I think this is a false argument. The two areas
are not intended to compete and neither will they.
Central will remain Hong Kong’s core business
district and companies who need to be there will
remain there.
However CBD2 will complement Central by
providing a viable location for back office space
as well as main offices for those sectors that
do not show a preference for Central - such as
insurance, retail and product sourcing, to name
but three.
Major occupiers predominantly lease their office
premises; however we are seeing a re-emergence
in the trend for major occupiers purchase their
office premises. China Construction Bank did so
when it acquired Sino Land’s latest commercial
development 18 Kowloon East and the recent
sale of 50 Connaught Road Central to another
Chinese bank is further testimony of this.
So if a major international corporate were trying
to enter / expand in the Hong Kong market today
what options would it have?
The answer is very few due to the lack of available
space. In fact, despite the obvious advantages of
locating a major base in Hong Kong, it may have
to look at other markets in the region.
Hong Kong currently has very limited options.
Even within Kowloon East, occupiers are unable
to find an abundance of opportunities since the
district’s current vacancy rate is only at 4.5 per
cent (400,000 sq ft net) - a dramatic change from
the 35 per cent vacancy recorded in December
2008. That helps to explain why rentals recorded
a 33 per cent increase during 2011, an upward
trend we expect to continue during 2012 due
to the lack of suitable supply to accommodate
occupiers’ growth.
This helps highlight the importance of the CBD2
project, as a key new area which, alongside
Central and other existing commercial areas
in Hong Kong, can offer corporates a wider
selection of viable choices based on their needs.
Within our industry it seems to be all about
“location, location, location”, however we need
to remind ourselves that location is made by
creating destinations where people want to live
and work.
To make this project a success, the key is to ensure
a clear line of sight on the systematic delivery of
the master plan Hong Kong can then create a
destination that is not only a business hub, but
a vibrant and integrated community. Hong Kong
needs to avoid building a series of mega towers
without any consideration for human interaction.
CBD2 offers the Hong Kong major opportunity
to create a world-class destination that combines
location with commercial, retail and leisure needs
and further reinforces Hong Kong’s position as
one of the world’s best destinations.
For more information on this article , please
contact John Davies at john.davies@cbre.com.hk
or on +852 2820 5127.
OFFICE MATTERS HONG KONG
21
Hong Kong: A destination
for data Centre
by AMOD JAYAWANT, Director, Industrial Services, Hong Kong
Many people compare Hong Kong with Singapore and access what each location
has to offer.
Singapore started its initiative to attract global
corporations a few years earlier than Hong Kong.
However, when it comes to building and locating
data centres, I believe that Hong Kong has more
to offer in the long run.
The Hong Kong government has realised
the importance and value of having global
corporations base their regional headquarters
(including their regional data centres) in Hong
Kong and has released large areas of land
necessary for the building of data centres. This
will have a huge impact on the potential more
data centres being located in Hong Kong.
Data centres are capital intensive operations
and generally create more money for local
governments than labor intensive operations
like call centres. They are also more attractive to
local governments for their ability to generate tax
revenue.
Other benefits of establishing data centres in
Hong Kong are:
• For ICT development, the free flow of
information with no censorship on content
provides a good environment for the
development of web-based businesses such
as content and media and cloud computing.
• Being an international aviation hub, Hong
Kong enjoys great connectivity with different
parts of the world.
• Hong Kong is located in the heart of Asia
Pacific.
22
OFFICE MATTERS HONG KONG
• Hong Kong’s telecommunications
infrastructure is one of the most sophisticated
and advanced in the world, with a wide
range of innovative services available at
relatively low prices.
• There are multiple phone companies present
in Hong Kong (e.g., Singapore has only
one) which allows for competitive pricing
and carrier neutrality for data centres and
redundancy.
• Hong Kong has nine submarine cable
systems (17 overland cable systems and
eight satellites) for external communications,
with new submarine cable systems, including
the Asia Submarine-Cable Express and
Southeast-Asia Japan Cable, to be landed in
Hong Kong in 2012 to 2013.
This data had been Published by Office of the
Government Chief Information Officer, Hong
Kong Special Administrative Region Government
(www.ogcio.gov.hk) November 2011
My background is in managing the building of
data centres and related operations. With the
expected demand for data centres in Hong Kong
in the near future, CBRE is proactively defining
and assigning suitable buildings and space that
meet the requirements of our clients wishing to
set up data centres.
For more information on this article please
contact Amod Aayawant at amod.jayawant@cbre.
com.hk or on +852 2820 5126.
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23
Office agency team of the year
Rics 2012 Hong Kong Property Award
For more information please contact:
CBRE HK Limited
Licence No. C-004065
Hong Kong Island Office
4/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
+852 2820 2800
Kowloon Office
Suites 1201-03 & 14, 12/F, Tower 6,
The Gateway, 9 Canton Road
Tsimshatsui, Kowloon, Hong Kong
+852 2820 8100
© 2012 CBRE HK Limited. The information in this magazine is subject to change and cannot form part of an offer or contract. Every reasonable care
has been taken in providing this information and the developers/ owners of the projects. CBRE cannot be held responsible for any inaccuracies. All
information and photographs in this newsletter cannot be reproduced in other publication without the permission of CBRE. Logos cannot be reproduced
without permission from relevant clients.