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Hong Kong Running Out Of Office Space

News Posted On: 26 March 2013

Hong Kong’s office rents have fallen by over 20% from their 2008 peak, but Hong Kong remains one of the priciest places in the world to rent or buy a business address.

The central business district of Hong Kong suffers from such a serious undersupply of grade A office stock that the Hong Kong government has announced plans to build an entirely new CBD and relocate existing government offices in an attempt to increase long term supply. Even with these radical steps, it’s uncertain whether Hong Kong will be able to supply the burgeoning demand for office space.

At the end of 2012, the total floor area of grade A office space in Hong Kong was over 74 million square feet, and around 23% of this total was located in Hong Kong’s CBD, and 15% was in Kowloon.

Vacancy rates of grade A offices have increased since 2011, reaching 3.4% at the end of 2012, but this remains a historically low level, according to Frank Knight’s Hong Kong office, which recently published its Market Outlook Report.

All major financial centres, from New York to Singapore, face difficulties in accommodating long term business growth. Hong Kong has the smallest CBD area of all these cities, so it runs into trouble faster. Of the world’s major financial centres, Frank Knight used Singapore as their case study, and drew attention to the fact that both cities are the preferred locations for many international corporations setting up offices to operate in Asia. And Hong Kong faces losing out as its smaller CBD – about half the size of Singapore’s – drives up prices and makes the city less price-competitive.

There’s also the issue that Hong Kong’s property is aging. About 50% of Hong Kong’s grade A office buildings are more than 20 years old, and in the traditional CBD and Central areas buildings constructed before 1990 make up 57% of stock.

The Hong Kong market has also moved to increase land supply, with the budget for the 2013-2014 year revealing the inclusion of nine commercial areas in the latest Land Sale Programme, providing a total floor area of about 3.6 million square feet. ‘The lion’s share of new supply… will be located in Kowloon East, according to the report, and the majority of new buildings planned are for this area.

Hong Kong has also faced trouble in the residential market. The Hong Kong market is hot and has been getting hotter for some time, sparking protests from residents who complain that the cost of property is outstripping wages several times over. To combat this, land sales will be put on a schedule released by the government every quarter, rather than the current application list system, in a move intended to take control of land out of the hands of developers.

But Hong Kong still has adjustments to make on both the commercial and residential fronts if it hopes to avoid becoming a victim of its own success.

Written by writer on International Real Estate

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