April 4, 2018 SCMP
City must create more grade A premises to attract top-end firms that will make it an international centre for finance and commerce
In the past few months, I have participated in some activities relating to the “Belt and Road Initiative”, including a seminar in Beijing where senior officials and business leaders from the mainland and Hong Kong discussed how to leverage the city’s unique advantages to support the scheme and take it forward.
At the seminar, it became apparent that the city’s super-connector role could have a far-reaching impact on the demand for office space.
Hong Kong’s capital markets and professional services would be very useful for state-owned enterprises seeking opportunities under the initiative. Considering the scope, magnitude and complexity of the potential projects, the state firms and mainland enterprises would stand to benefit by setting up an office in the city.
The city is home to 154 licensed banks, 132 of which are incorporated outside Hong Kong. It is known for its expertise in providing legal, accounting and project development consultancy, as well as insurance, risk management and dispute resolution services.
Yet, Hong Kong needs to create more grade A office space to attract and accommodate these top-end enterprise occupiers, or risk losing them to competitors such as Singapore and Beijing.
We have experienced first-hand how important it is for leading state firms to be on the top of the game when it comes to the quality and specifications of their offices – they want grade A offices with high ceiling, excellent access to transport, hotels, restaurants and retail facilities, a strong tenant mix, and an abundance of space.
For top-notch occupiers, we are talking about 10,000 to 20,000 square feet of space, or about half to a floor at Two IFC. Anything less than this scale or quality would hardly be appropriate for the high-powered meetings that Hong Kong is expected to host, as it seeks to be the place where international mega deals are closed.
A look at the data of what is currently available shows the urgency of boosting supply. As at the end of last month, the overall grade A office vacancy rate in Hong Kong was a mere 4.6 per cent, with a lower 1.4 per cent in Central. In Wan Chai and Causeway Bay, the rate was 2.1 per cent, while Kowloon East saw a higher 11.8 per cent, which is expected to drop steadily over the year as occupiers move into the new offices.
At the moment, we have the capacity to increase supply in Central by freeing up the government sites for commercial development. It is estimated that by converting the Central harbourfront site, Rumsey Street Car Park, Queensway Plaza, and the Sheung Wan Bus Terminus, a further 1.3 million sq ft of office and 4.3 million sq ft of commercial space will be released.
We cannot lose sight of the competition from Singapore and tier-one mainland cities. In Singapore, where the government has been aggressively increasing the supply of grade A office space, the net effective rent in its central business district is only HK$43 (US$5.47) per sq ft per month, which is about a third of the HK$120 (US$15.27) per sq ft in monthly rent that Central commands in Hong Kong.
Singapore offers excellent connections to the rest of Southeast Asia, just as Hong Kong is the bridge to the mainland. What is there to stop companies – even if they were vying for belt and road projects – opening their offices in Singapore instead of Hong Kong, if space was more easily available and rents more affordable?
We need to make the right decision, and swiftly, to create premium office space that can attract and accommodate the kind of companies that will make Hong Kong a global centre for finance and commerce.
Lau Chun-kong is the head of valuation advisory services at JLL in Asia and Greater China