Hong Kong’s Central has rents so high that even a $900 billion investment bank has decided to flee the city’s traditional business district. Goldman Sachs is said to be moving its back office staff to a new location three metro stations away in Causeway Bay, according to local media reports, as the blue-chip bank winces at the cost of accommodating their staff in the $5.15 billion office tower.
The global investment firm, currently a tenant in The Center on Queen’s Road has leased five floors in Hysan Development’s Lee Garden Three in Causeway Bay. With a reported rent of HK$60 ($7.6) per square foot per month, the Causeway Bay building is just two-thirds the price of The Center’s, which leases for an average HK$100 ($12.7) per square foot.
White Shoe Investment Bank Believes Causeway Bay is A-OK
Goldman Sachs has leased the 22nd through the 27th floors in Lee Garden Three, amounting to a total area of 92,000 square feet (8,547 square metres), according to the South China Morning Post. the New York-based firm’s lease of four floors with a combined 100,000 square feet (9,290 square metres) in The Center will expire in December after seven years.
With Hysan’s new building having welcomed its first tenants in February, Goldman plans to relocate its back office staff to the recently completed project. The firm that previously employed current US Treasury Secretary Steve Mnuchin will retain its headquarters in the Cheung Kong Center in Central.
The Center, formerly owned by Li Ka-shing’s CK Asset Holdings, was recently crowned as Hong Kong’s priciest building when it sold for a record $5.15 billion to a consortium called CHMT Peaceful Development Asia Property late last year. However, mainland firm China Energy Reserve & Chemicals Group pulled out of the consortium in late February and disposed of its 55 percent stake in the acquisition to Hong Kong billionaire Pollyanna Chu and Xu Rongmao, founder of Shimao Property. The transaction is expected to complete within this month, local reports say.
High Rents And Ownership Uncertainty Drive Goldman Out
“There has been a lot of PRC demand pushing the rents in Central. Multinational companies like banks and those from the legal service sector are moving out because their businesses do not match with the rental growth,” said Denis Ma, JLL’s head of research during a phone interview with Mingtiandi.
The average office rent in Central is HK$119.8 ($15.3) per square foot per month at the end of March, after climbing by 4.6 percent year-on-year. By comparison, Causeway Bay saw a 3.6 percent yearly growth in rents to HK$66.6 ($8.5) over the same period, data from JLL shows. Meanwhile, the completion of new high quality office projects outside of Central, such as Lee Garden Three and One Taikoo Place in Quarry Bay are also drawing tenants away from the central business hub, Ma said.
In addition, Ma believes that short-term uncertainties around building ownership and redevelopment plans may also prompt tenants to relocate out of Central. “Imagine if a tenant invests a couple of millions in the fit out, only for the landlord to trigger the sale and redevelopment clause in the lease agreement. Over the past couple of months we’ve seen a number of tenants moving out of buildings because of the uncertainty arising from rumours around a building’s future.”
MNCs Look for New CBDs
This past year has seen a surge in multinational firms migrating from Central to alternative business locations in the city as rental costs have climbed. In November, BNP Paribas, the world’s sixth-largest financial services institution, moved much of its Hong Kong team to Swire Properties’ Taikoo Place in Quarry Bay to save nearly 75 percent on its rent.
US law firm Baker MacKenzie made a similar move by pre-leasing five floors totalling 100,000 square feet (9,290 square metres) in Swire’s new office tower One Taikoo Place also in Quarry Bay. The law firm will relocate its entire operations from Central’s Hutchison House to the Quarry Bay building once it is completed in the third quarter of 2018.
Across Victoria Harbour, Kowloon East is also enticing multinational companies. Citibank moved its Hong Kong headquarters to the developing business district in 2016, while JP Morgan plans to relocate its Hong Kong team next year to a new project being developed in the area by Nan Fung and Link REIT.