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Hong Kong Office Leasing Market – First Quarter, 2015

Hong Kong Office Leasing Market – First Quarter, 2015

Grade A Office Market Summary

Office leasing market experienced improved sentiment in Q1 2015. The positive impact of Shanghai-Hong Kong Stock Interlink extended from equity market to office market this quarter. Overall Grade A office net take-up returned to growth and overall rent increased by 2.1% QoQ.

On Hong Kong Island, demand was largely supported by medium sized bank and finance firms. Insurance and shipping companies continued to expand in Hong Kong East, Kowloon East and Kwai Chung.

Recent Leasing Transactions – Insurance Sector

Tenant Building District Size
(approx. sq.ft.)
MassMutual Kowloon Commerce Centre Tower 2 Kwai Chung 14,000
China Life Insurance Metroplaza Tower 1 Kwai Chung 5,400
FWD Metroplaza Tower 1 Kwai Chung 12,000
Prudential Berkshire House Hong Kong East 30,000
AXA Manhattan Place Kowloon East 14,000
RSA Insurance Group One Island East Hong Kong East 20,000

CBD (Central, Admiralty and Sheung Wan)

Among the key submarkets, CBD recorded the strongest growth in rent. Rent went up by 2.4% QoQ to HK$91.3 per sq.ft. effective.

Champion REIT leased large spaces in Citibank Plaza to multi-national finance companies over the last two quarters. BlackRock leased 67,000 sq.ft., Reuters took 33,000 sq.ft., Bloomberg (currently in Cheung Kong Centre) expanded and leased 33,000 sq.ft. in Citiabnk Plaza. Hong Kong listed conglomerate Fosun and printing firm Hua Jun both leased over 10,000 sq.ft. in the building.

China Bohai Bank leased 2,700 Two ifc. Bank of Beijing moved from The Center to 13,000 sq.ft. in Two ifc. Previous tenant of the space Commerzbank moved to The Lee Gardens.

Commonwealth Bank of Australia expanded 2 floors in the One Exchange Square.

Hong Kong East

Vacancy dropped to 1.1%, the lowest across all submarkets. Rent increased by 1.3% to HK$45.7 per sq.ft. effective.

There were continuous relocation from Warwick House and Cityplaza Three due to Swire’s redevelopment plan. Arts Development Council from Warwick House leased a whole floor 11,000 sq.ft. in 1063 King’s Road. Schneider Electric leased 34,000 sq.ft. Kerry Centre. Dimension Data from Cityplaza Three leased a whole floor in Oxford House. Leo Burnett moved out of Cityplaza Three to Level 6 in Landmark East-AIA Tower.

Activities in Hong Kong East were also supported by insurance and finance companies. BNP Paribas expanded in PCCW Tower by 14,000 sq.ft. Athena Financial Group leased 11,000 sq.ft. in Berkshire House. RSA Insurance Group merged with Allied World Assurance and consolidated 20,000 sq.ft. in One Island East.

On the other hand, cost cautious tenants captured $15 per sq.ft. rent difference by relocating to Kowloon East. For examples, British Petroleum and ZIM Shipping moved out of Island East to Kowloon East.

The shrinking availability is expected to limit option availability for tenants in 2015 and 2016. The tight availability is expected to continue until Citigroup relocates to its owned building and Somerset redevelopment completes.

Kowloon East

Notable transactions were recorded in a few buildings.

ZIM Integrated Shipping took 2 floors 42,000 sq.ft. in Pioneer Place. Levi Strauss jeans leased one and a half floors in Millennium City One – Standard Chartered Bank Tower.

Shipping company OOCL and chocolatier Ferrero Rocher leased three floors 54,900 sq.ft. and one floor 18,000 sq.ft. respectively in One Harbour Square.

Kwai Chung

Traditionally a logistic and container terminal, Kwai Chung is now back offices for banks and insurance companies. Shanghai Commercial Bank purchased three floors in Kowloon Commerce Centre Tower 2. It becomes another bank housed its back office KCC after Bank of America Merrill Lynch and Construction Bank of China.

China Life Insurance and FWD Insurance both leased space in Metroplaza Tower 1. MassMutual took majority portion of a whole floor 14,000 sq.ft. in Kowloon Commerce Centre Tower 2.

Grade A office rental growth

 District Q1 2015
Effective unit rent
CBD $91.3 +2.4%
Hong Kong East $45.7 +1.3%
Wan Chai & Causeway Bay $58.8 +0.9%
Kowloon East $31.0 +1.3%


Mutual recognition of funds between Mainland China and Hong Kong and the Shenzhen-Hong Kong stock interlink are to be launched in July and Q4 2015 respectively. These are going to further drive up leasing demand from asset management and securities firms. The required reserve ratio cut stimulus in China will continue to flood the economy with liquidity and hence, expansion demand from mainland corporates remains strong in the next half of 2015.

On the contrary, large multinational banks and global wealth management firms in Greater Central remain cost cautious as global banking regulations tightened after 2008. Unless there are more than HK$15 per sq.ft. rent difference, high fitout cost eliminates large portion of rent savings. These firms will choose to renew.

On the supply side, low vacancy and limited supply of new office developments on Hong Kong Island will limit viable relocation options for tenants. Tenants that are not traditionally tied to core CBD area will capture the $15 to $20 per sq.ft. rent difference between Hong Kong Island and other submarkets.
They will move to Kowloon and New Territories where relatively new and high quality buildings with large floor plates are offered. The rent of these areas are expected to increase steadily.

Hong Kong Island will have new office projects that offer contiguous floors and large floor plate from 2017 onwards. New developments include Asian House Redevelopment, No. 14-30 King Wah Road, Sunning Plaza Redevelopment, Swire’s Project 2A, Swire’s Kowloon Bay Development, etc.


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