Chinese companies are snapping up office space in Hong Kong, making rents in the region the world’s most expensive. The occupancy cost, including rent, service charges and taxes, in Central, the central business district of Hong Kong, is 60 per cent more expensive than New York’s Midtown and almost 75 per cent more expensive than London’s West End, says a report by global real estate consultant JLL.

The fourth edition of JLL’s Premium Office Rent Tracker reached the conclusion after studying 61 cities across the world, including Nairobi, Kuala Lumpur, Manila, Bengaluru and Manchester.

Looking for more options

The increase in rent is forcing some companies to look for more affordable office locations in decentralized locations.

“Hong Kong is a key financial hub in Asia, and Central is still the most important financial district. But vacancies are low in Central, which has pushed office rents up. Companies are now looking beyond Hong Kong’s traditional core office markets with more than half of all new lettings in the third quarter of 2018 taking place in decentralized locations. Hong Kong East and Kowloon East have emerged as favoured alternatives. Notable tenants who have shifted to Hong Kong East recently include Ernst & Young and Baker McKenzie,” says Denis Ma, head (research) at JLL Hong Kong.

The report says multinationals have long considered Hong Kong East as a back office location, but now it is increasingly being viewed as a prime office location.

“Total occupancy costs in Hong Kong East are 64 per cent lower than in Central while Kowloon East is 76 per cent lower than Central. The finance, insurance, real estate and business services sectors have been shifting to Hong Kong East, and now account for about 37 per cent of the tenant base. More tech and legal companies are also relocating from Central to Hong Kong East,” adds Ma.

Rest of Asia

The report concludes that districts in cities in Greater China, including Hong Kong, Beijing, Shenzhen and Shanghai, are six of the top 10 most expensive premium office markets in Asia.

Consequently, several Chinese cities are witnessing decentralization, as companies try to look for ways to save, “with premium occupancy costs averaging US$338 per square foot in Hong Kong’s Central, US$189 per square foot in Beijing’s Finance Street, and US$131 per square foot in Shanghai’s Pudong district.”

Singapore, which was on the 14^th spot last year, made its way into the top 10 for Asian cities in 2018.

The willing buyers

When it comes to the top occupiers for premium office space, companies from the banking and financial services industry take the lead.

“High-value, high-margin businesses in financial services such as private, corporate and investment banking firms, rent premium office space in Beijing, Shanghai, Tokyo and Singapore. While cost remains a key factor, these companies prioritize access to talent and the need for amenities when selecting their next office location. They target premium quality buildings to attract and retain top talent, which also helps to enhance their brand image,” says Jeremy Sheldon, managing director (markets and integrated portfolio services), JLL Asia Pacific.