What’s powering the Hong Kong office market?
When looking at the density of the Hong Kong office market, it’s hard to imagine it, able to become denser, but that question is exactly what Jones Lang & LaSalle (JLL) have investigated. According to JLL, in the last 15 years, a total of 27 million square feet of office space have been built in Hong Kong, and it’s not enough. Landlords in Hong Kong have enjoyed a long period of limited supply, low vacancies and the highest rents in the world. A recent study by Knight Frank found that rents are so high, they were double that of the next closest global city.
Pressing matters even further, most of the key indicators suggest demand only increasing. Key demand drivers in Hong Kong include:
- It’s an international hub for finance, commerce & trade.
- Hong Kong has highly sophisticated financial markets
- Hong Kong has low taxes and relatively low regulation
- It’s a highly desirable location for top talent
Furthermore demand is fueled by continuing economic integration with Mainland China. JLL estimates over a dozen Mainland Chinese financial institutions are already on a waiting list for Hong Kong office space. From a financial point of view, Hong Kong has long been a front door into and out of mainland China. Improving transportation to and from various cities in mainland accelerates this important role.
In their study, JLL identified four potential locations for office absorption in Hong Kong.
Hong Kong East – While already experiencing office growth, JLL has identified two key advantages for Hong Kong East. Its mixed-use precincts are likely to attract office tenants and secondly the completion of the Central-Wanchai Bypass and Island East Corridor Link will significantly increase accessibility.
Kowloon East – According to the government’s plan for Kowloon East, the potential exists for an additional 28 million square foot of office space in Kowloon East and they are working to accommodate this growth by investing transportation infrastructure.
Wanchai and Causeway Bay – Like Kowloon East & Hong Kong East, investments in transportation are also being made in Wanchai and Causeway Bay, however they are also receiving the release of developable land, which should attract investors.
West Kowloon – JLL is of the opinion that due to constraints on supply and government planning, West Kowloon is unlikely to become the next office mecca.
Recently two office properties sold for $US 2.4 billion in Hong Kong. One of the properties sold for $4,660 a square foot, almost double that of a sample taken by Cushman Wakefield in early 2015, further pressing the question of where to next? Hong Kong is already the world’s second most competitive economy, according to a ranking by the IMD World Competitiveness Center earlier this year, and it doesn’t appear to be losing steam.
Top photo: Hong Kong landscape © Ronnie Chua, via Shutterstock