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’s also 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 on in current markets.”
Companies are jumping on the opportunity to upgrade to bigger and better offices amid Hong Kong’s rare property downturn.
That’s adding pressure to 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% lower than in 2019, according to JLL data. “Right now we’ve got 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%, 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 governance certifications, wellness facilities, a large floor plate with more square footage for a single story, access to transportation, and provisions including high-tech air-conditioning systems, according to experts.
A number of companies have been jumping on the opportunity.
Jefferies Financial Group Inc moved from Li Ka-shing’s Cheung Kong Centre to Two International Finance Centre; ByteDance Ltd relocated to One IFC, and law firm Stephenson Harwood LLP 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 at Kowloon Bay to a 16,700 sq ft space at Swire Properties Ltd’s 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 Ltd. analyst Sam Wong.
Within the prime business district, Hongkong Land Holdings Ltd – 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% as of June, compared with a rate of 9.4% in Central.
Its oldest building, Prince’s Building, has an occupancy rate of nearly 100%.
The building invests as much as US$100mil (RM451mil) annually in upgrades.
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. The developer declined to comment.
Locking down and overhauling any of the property would mean a loss of rental income when the market is already in a downturn. That’s 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 Henry Chin, head of research, Asia Pacific at CBRE Group Inc. “It’s a chicken and egg thing.” — Bloomberg
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